Delhi District Court
Cpm School vs M/S Edusmart Services Pvt. Ltd on 10 August, 2021
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
ARBTN No. 5407/2018
CPM School
Lakkur, Malur Taluk, Kolar District,
Karnataka -563160 ...Petitioner
vs
1. M/s Edusmart Services Pvt. Ltd
L-74, Mahipalpur Extension,
New Delhi-110037
2. M/s Educomp Solutions
1211, Padma Tower-1,
5, Rajendra Place,
New Delhi-110008
3. Ms. Saroj Bala
(Ld. Sole Arbitrator)
O-11/B (Basement)
Jangpura Extension,
New Delhi-110014 ...Respondents
Date of Institution : 24/09/2018
Arguments concluded on : 20/07/2021
Decided on : 10/08/2021
Appearances : Sh. Manish Tiwari, Ld. Counsel for petitioner.
Sh. Chaitanya Mathur, Ld. Counsel for respondent no. 2.
JUDGMENT
1. Petitioner had filed the present petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act) seeking setting aside of the ex-parte arbitral award dated 25/01/2017 passed by Ms. Saroj Bala, Advocate, Ld. Sole ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 1 of 31 Arbitrator in arbitration case file number C-066-06840. Ld. Sole Arbitrator awarded sum of Rs.8,75,281/- with interest @ 18% per annum from the date of reference made by claimants till the date of award as well as further interest @ 10% from the date of award till the date of actual payment; in favour of claimants/present respondents payable by present petitioner with costs detailed therein.
2. I have heard Sh. Manish Tiwari, Ld. Counsel for petitioner; Sh. Chaitanya Mathur, Ld. Counsel for respondent no. 2 and perused the record of the case, the arbitral proceedings record, relied upon precedents, filed brief written arguments on behalf of petitioner as well as both respondents and given my thoughtful consideration to the rival contentions put forth.
3. Shorn of unnecessary details, the facts of the case of petitioner as well as arguments setup by the petitioner through Ld. Counsel are as follows:-
Petitioner school entered into Tripartite Agreement dated 26/11/2011 with the respondents for services related to Smart Class Program to be provided by respondent nos. 1 and 2 to petitioner school. Respondents were obligated to provide hardware, software and personnel for installation of the program at the school of petitioner. Petitioner paid total sum of Rs.2,74,009/- to respondents for the period from 15/12/2011 till 17/05/2013 in terms of Tripartite Agreement. Allegedly respondents did not perform their part of the contract. There was no coordinator on time to assist the teachers and supply materials on time and rectify the defects as agreed, even software had lot ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 2 of 31 of problems at inception itself. Smart classes did not function as per the representation of respondents, advertisement or promotion of the product/services provided by them. The services provided by respondents were deficient. The investment made by petitioner school went in vein and it was widely criticized by the parents and children of school whereas it was huge fraud, cheating and breach of trust committed upon petitioner school by the respondent nos. 1 and 2. Despite repeated requests, e-mails, letters by petitioner school to respondents, respondents had miserably failed in performing their part of obligations mentioned in the agreement. Petitioner school had to suffer heavy losses due to unprofessional behavior of the respondents and strength of school decreased from 500 to
369. Despite all the unprofessional behavior respondents had the audacity to issue notice to petitioner on 02/12/2014 and petitioner school filed its reply notice on 05/12/2014 stating of respondents having failed to perform their obligations and it was the respondents who owed money to the petitioner.
Petitioner filed Consumer Complaint under Section 12 of The Consumer Protection Act, 1986 before Kolar District Consumer Disputes Redressal Forum. Ld. Consumer Forum vide order dated 04/06/2015 held that the respondents had miserably failed to perform its part of the agreement and put the petitioner to losses and awarded petitioner compensation of Rs 6,00,000/- with interest of 6% per annum from 16/03/2015. Respondents referred the matter unilaterally to Sh. J.N. Yadav, Ld. Sole Arbitrator for adjudication in respect of dispute arising out of the agreement without any consent of petitioner school and even without jurisdiction as well. After receipt of notice of arbitration ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 3 of 31 proceedings from Sh. J.N. Yadav, Ld. Sole Arbitrator, petitioner sent written objection cum arguments to said Ld. Sole Arbitrator Sh. J.N. Yadav. Said Ld. Sole Arbitrator Sh. J.N Yadav had recused himself from the post of Sole Arbitrator and informed that he had withdrawn from the office of Sole Arbitrator and parties are at liberty to proceed as per law by the proceeding dated 19/04/2016. Subsequent to recusal of first Ld. Sole Arbitrator, without the consent of petitioner second Ld. Sole Arbitrator Ms. Saroj Bala, Advocate was appointed by the respondents and without any intimation to petitioner school. Second Ld. Sole Arbitrator failed to send any notice to petitioner and proceeded the matter ex-parte as petitioner was not aware of the subsequent proceedings as well as appointment of second Ld. Sole Arbitrator after recusal of first Ld. Sole Arbitrator. The impugned ex-parte award was passed in violation of the principles of natural justice without giving opportunity to petitioner school to defend in the arbitral proceedings. Petitioner was shocked to learn of impugned award after receipt of notice from Executing Court of Ld. Principal District and Sessions Judge, Kolar. Petitioner school did not receive any signed copy of impugned ex-parte arbitral award but had filed its objections before the Executing Court.
4. Petitioner has impugned the ex-parte arbitral award mainly on the following grounds:-
A. Respondent nos. 1 and 2 obtained the impugned award in their favour by unfair means without informing Ld. Arbitrator of correct facts and suppressed the material facts and without following the ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 4 of 31 due process of law.
B. No notice was sent by second Ld. Sole Arbitrator to petitioner school which was violation of principles of natural justice.
C. The impugned ex-parte arbitral award is based on incorrect facts and second Ld. Sole Arbitrator had no idea about the award passed by District Consumer Commission against respondents on 04/06/2015 in CC No. 10/2015 nor second Ld. Sole Arbitrator was informed about such award and the impugned award was passed in gross violation of law.
D In the legal notice sent by respondents on 02/12/2014 to petitioner claim was of much lesser amount, however claim petition filed by the respondents sought amount of Rs. 8,75,281/- without any justification and without deducting Rs.2,74,099/- paid by petitioner and facts were suppressed by the respondents before second Ld. Sole Arbitrator and fraud was played in obtaining impugned ex-parte award illegally.
E. Before Ld. Sole Arbitrator none of the invoices were proved by the claimants based upon which the statement of account was laid with respect to the claim and the amount of entire amount was based upon only statement of account. The impugned ex-parte arbitral award is without application of mind, without any evidence with respect to invoices whose descriptions were given in the statement of account.
F. Second Ld. Sole Arbitrator was a permanent
ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 5 of 31
Arbitrator of the respondent's company in several
matters and was appointed as Arbitrator for more than 100 of the cases of respondent's company and her unilateral appointment as an Arbitrator is patently illegal and contrary to principles of natural justice and per contra to terms of Tripartite Agreement inter se parties. Even second Ld. Sole Arbitrator did not send to petitioner school any requisite disclosure under Section 12 of the Act which vitiated the arbitral proceedings and for that ground alone award is liable to be set aside.
G. Respondent no. 1 miserably failed to perform its part of the obligations despite requests/letters/e-mails of petitioner school but said fact was overlooked by second Ld. Sole Arbitrator and being permanent arbitrator of respondents, second Ld. Sole Arbitrator was partial towards the respondents.
H. The impugned ex-parte arbitral award was passed without looking and asking for the material by second Ld. Sole Arbitrator which is evident from the award and the respondents suppressed material documents and tried to mislead second Ld. Sole Arbitrator and the impugned ex-parte arbitral award is liable to be set aside under Section 34(2)(b)(ii) of the Act.
I. The impugned ex-parte arbitral award is error apparent on the face of record.
J. Respondent no. 2 had failed to co-ordinate with the petitioner to run smart classes smoothly by employing an employee on their behalf to guide and ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 6 of 31 educate the school as well as the children.
Ld. Counsel for petitioner in terms of the aforesaid grounds relied upon the cases of (i) Perkins Eastman Architects DPC & Anr. Vs HSCC (India) Ltd., 2019 SCC OnLine SC 1517; (ii) Kashmiri Lal Surinder Kumar vs M/s Veerbhan Ramesh Kumar & Ors., in C.S (O.S) No. 226/2006 decided on 07/07/2015 by High Court of Delhi; (iii) Dakshin Haryana Bijli Vitran Nigam Ltd. vs M/s Navigant Technologies Pvt. Ltd, 2021 SCC OnLine SC 157 and
(iv) State of Maharashtra & Ors vs ARK Builders Private Ltd., (2011) 4 SCC 616.
Petitioner through Counsel prayed for setting aside of impugned ex-parte arbitral award.
5. After service and despite opportunities respondents did not file any reply to the petition. However, on behalf of the respondents written arguments were filed on 06/01/2021 by the then Authorized Counsel for the respondents. Ld. Counsel for respondent no. 2 also addressed oral arguments in terms of filed written submissions on behalf of respondents. It was argued that grounds taken by petitioner were frivolous, baseless and without any proof. It was argued that vague averments against the award were made by petitioner on baseless grounds which do not fall within the scope of Section 34(2)(a) of the Act, Section 34 (2)(b) of the Act and/or Section 34 (2A) of the Act. It was argued that decision of Ld. Arbitrator is generally considered binding between the parties and therefore, the power of the Court to set aside the award would be exercised only in the cases where ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 7 of 31 Court finds that the arbitral award is on the face of it erroneous or patently illegal or in contravention of the provisions of the Act, as was held in the case of Swan Gold Mining Ltd. vs Hindustan Copper Ltd., Civil Appeal No. 9048 of 2014, decided on 22/09/2014 by Supreme Court. It was argued that it is well settled proposition that the Court shall not ordinarily substitute its interpretation for that of the Arbitrator. It was argued that general principles as to arbitration proceedings are that the Arbitrator is a Judge of the choice of the parties and his/her decision, unless there is an error apparent on the face of the award cannot be interfered. The Court while deciding the objection petition under Section 34 of the Act is not sitting in appeal over the conclusion of the Arbitrator. The Court cannot reappraise the evidence and it is not open to the Court to set aside the finding of the fact arrived at by the arbitrator. Where the arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the Court in exercise of the power vested in it. It was argued that petition is time barred. It was also argued that petitioner was well aware of the arbitral proceedings as it is own case of petitioner that after receipt of notice of Execution Petition no. 111 of 2017 from Court of Ld. District and Sessions Judge at Kolar, petitioner entered appearance there on 28/08/2017. It was argued that petition is barred by limitation. It was argued that attitude of petitioner amounts to ignorance of law, whereas it is settled law by Supreme Court that ignorance of fact may be excused, but ignorance of law cannot be excused; so petition is liable to be dismissed. By order dated 02/07/2015 petitioner was proceeded ex-parte by first Ld. Sole Arbitrator.
ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 8 of 31Ld. Counsel for respondents also relied upon the cases of (i) Union of India vs Popular Construction Co., (2001) 8 SCC 470 and (ii) Simplex Infrastructure Ltd. vs Union of India, (2019) 2 SCC 455 and argued that Section 5 of The Limitation Act, 1963 has no application for condoning the delay in filing petition under Section 34 of the Act filed for challenging an arbitral award. It was prayed that petition along with application for condonation of delay be dismissed.
6. An arbitral award can be set aside on the grounds set out in Section 34 (2) (a), Section 34 (2) (b) and Section 34 (2A) of the Act in view of Section 5 of the Act and if an application for setting aside such award is made by party not later than 3 months from the date from which the party making such application had received the signed copy of the arbitral award or if a request had been made under Section 33 of the Act, from the date on which that request had been disposed of by the Arbitral Tribunal. If the Court is satisfied that the applicant was prevented by sufficient cause from the making the application within the said period of three months it may entertain the application within further period of 30 days, but not thereafter.
7. Section 34 (1) (2), (2A) and (3) of The Arbitration and Conciliation Act, 1996 read as under:-
"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 the court only if-ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 9 of 31
(a) the party making the application furnishes proof 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 a 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 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 an award 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.
ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 10 of 31Explanation 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 reappreciation of evidence.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter."
8. Present petition was filed on 24/09/2018 by petitioner impugning the ex-parte arbitral award dated 25/01/2017.
Petitioner had received notice of Execution Petition no. 111/2017 of Executing Court at Kolar. Respondents through Counsel claimed that petitioner have gained the knowledge of impugned ex-parte arbitral award by notice of aforesaid execution petition. Petitioner had filed objections dated 17/03/2018 in said execution petition. It is the case of petitioner that petitioner never received any signed copy of impugned ex-parte arbitral award from Ld. Sole Arbitrator. In the arbitral proceedings record, the concluding para of the impugned ex-parte arbitral award find mentions that signed copy of final award is given to claimants and another signed copy be sent to the respondent (petitioner school) by ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 11 of 31 registered post. Also is mentioned in the concluding para no. 54 of impugned ex-parte arbitral award that said award is being passed on a stamp paper of Rs.875.28. Bare perusal of copy of the impugned ex-parte arbitral award filed with the petition reveals that the same has copy of one e-stamp certificate of Rs 500/- issued on 30/03/2016 and copies of four e-stamp certificates of Rs 100/- each issued on 21/04/2016. If these e- stamp certificates were issued on 30/03/2016 and 21/04/2016, then as per averment in the concluding para no. 54 of impugned ex-parte arbitral award how can said award be passed on 25/01/2017 on these e-stamp certificates. In the arbitral proceedings record there is no proof of service of any signed copy of impugned ex-parte arbitral award upon the petitioner school or its dispatch to petitioner school on 25/01/2017. There is a separate speed post receipt of date 31/01/2017 stapled on tracking report, which speed post receipt is addressed to petitioner school by ADV SAROJ BALA i.e., Ld. Sole Arbitrator and copy of tracking report on which it is stapled find mention that consignment details not found. Even the article so dispatched vide aforesaid speed post dated 31/01/2017 cannot be presumed to be served upon the petitioner school in view of aforesaid elicited averment in the tracking report. Even respondents have not placed on record any document/material depicting sending of any signed copy of impugned ex-parte arbitral award by Ld. Sole Arbitrator to petitioner school. Accordingly, this Court cannot presume delivery of signed copy of impugned ex-parte arbitral award upon the petitioner school.
9. Supreme Court in case of Dakshin Haryana Bijli Vitran ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 12 of 31 Nigam Ltd. vs M/s Navigant Technologies Pvt. Ltd (supra) has held that the date on which the signed award is provided to the parties is a crucial date in arbitration proceedings under the Act. It is from this date that: "(a) the period of '30 days' commences for filing an application under Section 33 for correction and interpretation of the award, or for additional award; (b) the arbitral proceedings would terminate as provided by Section 32(1) of the Act; (c) the period of limitation for filing objections to the award under Section 34 commences."
10. Supreme Court in case of State of Maharashtra & Ors vs ARK Builders Private Ltd. (supra), has held that the period of limitation prescribed under section 34(3) of The Act would start running only from the date when a signed copy of award is delivered to/received by a party making the application for setting aside the award under section 34(1) of The Act. Reliance was placed on the case of Union of India vs Tecco Trichy Engineers & Contractors, (2005) 4 SCC 239, wherein also was so held by Supreme Court.
11. Supreme Court in case of Benarsi Krishna Committee & Ors. Vs Karmyogi Shelters Pvt. Ltd, (2012) 9 SCC 496 has held that limitation of three months under section 34(3) of The Act is to be reckoned from date on which party itself received signed copy of the award and not its advocate or agent. Bombay High Court in case of E-square Leisure Pvt. Ltd. vs. K.K. Jani Consultants and Engineering Company, (2013) 2 Bom.C.R. 689, has held that the limitation for making an application under section 34(3) of The Act for setting aside an arbitral award would ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 13 of 31 commence only after a signed copy of the award is received by a party from the arbitral tribunal under section 31(5) of The Act.
12. Since there is no material placed on arbitral proceedings record and even no material has been placed on record by the respondents whereby it can be presumed that signed copy of award was ever served upon the petitioner school by Ld. Sole Arbitrator; in terms of law laid in the cases of (i) Dakshin Haryana Bijli Vitran Nigam Ltd. vs M/s Navigant Technologies Pvt Ltd (supra); (ii) Union of India vs Tecco Trichy Engineers & Contractors (supra); (iii) State of Maharashtra & Ors vs ARK Builders Private Ltd. (supra); (iv) Benarsi Krishna Committee & Ors. Vs Karmyogi Shelters Pvt. Ltd (supra) and (v) E-square Leisure Pvt. Ltd. vs. K.K. Jani Consultants and Engineering Company (supra); it cannot be said that present petition is barred by limitation since the limitation period for filing the petition under Section 34 of The Act for setting aside an arbitral award would commence only after signed copy of the award is received by the party from Arbitral Tribunal.
13. Normally, the general principles are that Arbitrator is a Judge of the choice of the parties and his decision, unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even by the Court as a Court of law could come to a different conclusion on the same facts. The Court cannot reappraise the evidence and it is not open to the Court to sit in appeal over the conclusion of the Arbitrator. It is not open to the Court to set aside a finding of fact arrived at by ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 14 of 31 the Arbitrator and only grounds on which the award can be set aside are those mentioned in the Arbitration Act. Where the Arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the Court in exercise of the power vested in it. Where the Arbitrator is a qualified technical person and expert, who is competent to make assessment by taking into consideration the technical aspects of the matter, the Court would generally not interfere with the award passed by the Arbitrator.
14. Supreme Court in case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor capricious, no interference is called for on facts. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
15. Supreme Court in case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 has held that under Section 34 (2A) of The Act, a decision which is perverse while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. A finding based on the documents taken ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 15 of 31 behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would also have to be characterized as perverse. It is held that a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
16. Section 11 of The Act is with respect to the appointment of the arbitrators by the Supreme Court or as the case may be, by the High Court only.
17. Under Section 12 of The Act, when a person is approached in connection with his possible appointment as an arbitrator, he is bound to disclose in writing any circumstances, such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Various grounds are set out in the Fifth Schedule as a guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. The disclosure shall be made by such person in the form specified in the Sixth Schedule. An arbitrator may be challenged by the parties only if any circumstances referred to in Section 12 (3) of The Act ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 16 of 31 subject to Section 13 (4) of The Act exist which provide for an agreement between the parties for such procedure for challenge. If such challenge is unsuccessful, the party may make an application for setting aside an arbitral award in accordance with Section 34 of The Act.
18. Section 14 of The Act provides that the mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator if he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay and he withdraws from his office or the parties agree to the termination of his mandate.
19. Section 15 of The Act provides that the mandate of arbitrator is also terminated if he withdraws from office for any reason or by or pursuant to agreement of the parties. In such an event, the substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. If such an arbitrator is replaced, any hearing previously held may be repeated at the discretion of the arbitral tribunal unless otherwise agreed by the parties. The earlier order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator shall not be invalid unless otherwise agreed by the parties.
20. Under Section 16 of The Act, the arbitral tribunal is empowered to rule on its own jurisdiction including ruling on any objection with respect to the existence or validity of arbitration agreement. Such plea shall be raised not later than the ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 17 of 31 submission of the statement of defence. If such plea is rejected by the arbitral tribunal, it has to proceed with the arbitral proceedings and declare an award. If plea of jurisdiction is accepted by the arbitral tribunal, the respondent may file an appeal under section 37 of The Act. If plea of jurisdiction is not accepted, the respondent may challenge such ruling along with award under section 34 of The Act.
21. Supreme Court in case of TRF Ltd. vs Energo Engg. Projects Ltd., (2017) 8 SCC 377 has held that by virtue of section 12(5) of The Act, if any person, who falls under any of the category specified in the Seventh Schedule shall be ineligible to be appointed as an Arbitrator. It is held that the amended law under Section 11(6-A) of The Act requires the Court to confine examination of the existence of an arbitration agreement notwithstanding the judgment of the Supreme Court or the High Court while considering an application under section 11(6) of The Act. The designated arbitrator whose ineligibility to act as an arbitrator by virtue of amendment to Section 12 of The Act by the Arbitration and Conciliation (Amendment) Act, 2015, does not have power even to nominate any other person as arbitrator. The Supreme Court and High Court in certain circumstances have exercised jurisdiction to nullify the appointments made by the authority in such situation.
22. Supreme Court in case of Bharat Broadband Network Ltd vs United Telecoms Ltd, (2019) 5 SCC 755 after construing Section 12(5) of The Act read with Fifth, Sixth and Seventh Schedule held that the Managing Director of the party, who was a ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 18 of 31 named arbitrator, could not act as arbitrator nor could be allowed to appoint another arbitrator. The disclosure of a prospective arbitrator has to be made in the form specified in the Sixth Schedule and the ground stated in the Fifth Schedule are to serve as a guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Any prior agreement to the contrary is wiped out by the non-obstante clause in Section 12(5) of The Act 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 arbitrator. Such ineligibility can be removed by an express agreement in writing. It was held that learned arbitrator had become de jure ineligible to perform his function as an arbitrator.
23. Supreme Court in the case of Perkins Eastman Architects DPC vs HSCC (India) Ltd., 2019 SCC Online SC 1517 has held that 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. 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. Supreme Court has set aside the appointment of an arbitrator appointed by one of the parties having exclusive right to appoint and appointed an independent arbitrator in the application filed under Section 11(6) of The Act.
ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 19 of 3124. In the case of Proddatur Cable TV Digi Services vs. Siti Cable Network Ltd., 2020 SCC Online Del 350, it was inter alia held by Delhi High Court that following ratio of the judgment in the case of Perkins (supra), it is clear that a unilateral appointment by an authority which is interested in the outcome or decision of the dispute is impermissible in law. When the Arbitration Clause empowers the Company to appoint Sole Arbitrator, it can hardly be disputed that the Company acting through its Board of Directors will have an interest in the outcome of the dispute. The appellant had filed the petition under Section 14 and 15 of The Act seeking declaration that the mandate of the arbitrator appointed by the respondent be terminated and an arbitrator be appointed by High Court in the provisions of The Act. Following ratio of the judgments in Perkins (supra) and Bharat Broadband Network Limited (supra), the mandate of the Arbitrator was found terminated de jure and since the present arbitrator had become unable to perform her functions as an arbitrator, her mandate was terminated and another independent Sole Arbitrator was appointed to substitute the previous arbitrator.
25. In the case of M/s Omcon Infrastructure Pvt. Ltd. Vs India Bulls Investment Advisors Ltd, OMP (T) (Comm.) 35/2020 and IA 6153/2020 decided on 01/09/2020 by Hon'ble Ms. Justice Rekha Palli of Delhi High Court, wherein petition was filed under Section 14 and 15 of The Act, seeking termination of the mandate of Ld. Arbitrator unilaterally appointed by the respondent and also quashing of order passed by Ld. Arbitrator, ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 20 of 31 deciding the application of petitioner under Section 12 of The Act, the ratio of the decision in case of Perkins (supra) was applied and held that once the Managing Director of the respondent Company was ineligible to appoint the arbitrator, the same would also bar the Company itself from unilaterally appointing the sole arbitrator and reference was also made to the decision of Proddatur Cable TV Digi Services (supra). Therein also the mandate of the Ld. Arbitrator was terminated and new independent Sole Arbitrator was appointed.
26. Following is the Clause 9.1 of the Agreement in question between the parties:-
"9.1 ARBITRATION 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 there under. The sole Arbitrator shall be appointed by Party A. The venue for arbitration shall be at New Delhi and the language shall be English. The courts in New Delhi shall have jurisdiction to entertain all disputes between the parties."
27. Bombay High Court in the case of Bhanumati J. Bhuta vs Ivory Properties & Hotels Pvt. Ltd., 2020 SCC Online Bombay 157 has held that the arbitral proceedings commence in respect of dispute when notice invoking of arbitration agreement is received by other side and not when such notice is only served upon the Arbitral Tribunal. The onus is on the applicant who had issued such notice to prove the delivery of such notice upon the other side.
28. In the case of International Nut Alliance LLC vs Beena ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 21 of 31 Cashew Company, 2014 SCC Online Mad 425, it was inter alia held that before composition of arbitrators, a notice to the other party is very much essential.
29. Section 21 of The Act provides that unless and otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which the request for that dispute to be referred to the arbitration is received by the respondent. Limitation in respect of which a request is made by one party to other party to refer such dispute to the arbitration stops when such notice is received by other party.
30. In the arbitral proceedings record is a copy of legal notice dated 28/10/2014 addressed by Ms. Jyotsna Sharma, Advocate on behalf of respondents to petitioner school demanding payment of Rs.3,80,001/- allegedly due and payable by petitioner school till September 30, 2014 with future interest @ 18% per annum within 15 days from the date/receipt of said notice, failing which respondents would presume that a dispute has arisen and respondents shall invoke the arbitration clause under the Tripartite Agreement. Accordingly, aforesaid legal notice dated 28/10/2014 was legal demand notice allegedly sent by the respondents through Counsel to petitioner school demanding allegedly notice amount with interest towards services and infrastructure availed by petitioner school under the subject agreement. Said legal notice dated 28/10/2014 cannot be said by any figment of imagination to be a notice under Section 21 of the Act mandatorily requiring request for that dispute to be referred to the arbitration as it contained the notice period of 15 ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 22 of 31 days for the petitioner school to make the payment from the date/receipt of said notice.
31. In the arbitral proceedings record there is also a letter dated 02/02/2015 addressed by Sh. Nitesh Kumar, Sr. Manager-Legal of respondent no. 2 to Ld. Sole Arbitrator namely Sh. J.N Yadav (Retd. District Judge) requesting him to accord his consent for his appointment as Sole Arbitrator for adjudication of the disputes between the parties of Tripartite Agreement in question after invoking the arbitration clause of said agreement. Also in the arbitral proceedings record is the notice of appearance dated 24/02/2015 given by first Ld. Sole Arbitrator to petitioner school fixing 20/04/2015 as first date of hearing before him and the mention of his appointment as Sole Arbitrator by Claimant (Respondent no 2). First Ld. Sole Arbitrator also did not send any requisite disclosure in terms of the then applicable Section 12 of the Act disclosing in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality in the prescribed form. In the proceeding/order sheet dated 20/04/2015 of first Ld. Sole Arbitrator there is mention of receipt by post of written objection cum arguments, list of documents and Vakalatnama on behalf of petitioner school. Said objection cum arguments sent by post by petitioner school are in the arbitral proceedings record and have endorsement of first Ld. Sole Arbitrator for receipt of them on 31/03/2015. Perusal of these objections reveal that they inter alia contain that as per oral and existing agreement the claimants i.e., present respondents had to appoint arbitrator after consulting petitioner school and at Lakkur only; stating that the school/institution is ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 23 of 31 financially very poor and it is very difficult to reach the New Delhi personally in view of social, economic and personal problems and also finds mention that the petitioner school had filed complaint before District Consumer Forum at Kolar under Section 12 of The Consumer Protection Act, 1986 vide case no. 10/2015 and these objections also contain the mention at the outset that the claimants have not sent any copies as per Index except copy of the petition filed before Ld. Sole Arbitrator. It is in the proceeding/order sheet dated 20/04/2015 of Ld. Sole Arbitrator that copy of those objections and documents etc. were supplied to Authorized Representative of the claimants present there and matter was fixed for 02/07/2015 for rejoinder if any, issues and consideration. The proceeding/order dated 02/07/2015 of first Ld. Sole Arbitrator finds mention that the rejoinder/reply to aforesaid objections cum written arguments of petitioner school was not ready on behalf of claimants for which time was sought and granted and such rejoinder/reply, if any to written objections cum arguments of petitioner school was to be filed on 27/08/2015. Strangely to all cannons of law, during pendency of aforesaid objections of petitioner school, elicited above, filed before first Ld. Sole Arbitrator challenging the competence of the Arbitral Tribunal to rule on its jurisdiction and grant of time to claimant to file reply to such objection, in the same stroke of pen on 02/07/2015, first Ld. Sole Arbitrator proceeded petitioner ex-parte then and there. True that the Arbitral Tribunal may rule on its own jurisdiction including on any objections with respect to the arbitration clause/agreement. It was for the first Ld. Sole Arbitrator to adjudicate on such challenge of petitioner school. In the pendency of aforesaid ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 24 of 31 challenge vide aforesaid objections of petitioner school, there existed no premise before Sole Arbitrator to proceed petitioner school ex-parte. It would have been different fact situation had the first Ld. Sole Arbitrator dismissed the objections/ challenge of petitioner school and then proceeded petitioner school ex- parte. Same was not done. Arbitral proceedings record reveals that aforesaid challenge/objections were never dismissed/ decided in any of the proceedings/impugned arbitral award by Ld. Arbitrators and even the respondents herein did not file any reply to said objections/challenge of petitioner school before Ld. Sole Arbitrator.
32. Before first Ld. Sole Arbitrator after substituting AR of claimants on 31/12/2015, the affidavit of AR of claimants and documents were exhibited in ex-parte evidence, ex-parte arguments were heard and case was fixed for 27/01/2016 for order. No orders were pronounced by first Ld. Sole Arbitrator on 27/01/2016 or on 09/03/2016 or on 01/04/2016 or on 19/04/2016, subsequent adjourned dates of hearing by first Ld. Sole Arbitrator. Proceeding/order dated 19/04/2016 of first Ld. Sole Arbitrator reveals that after perusal of the record, parties were informed that he had withdrawn from the office of Sole Arbitrator and parties are at liberty to proceed as per law, whereas file was returned to the claimants and copy of order was sent to petitioner school for information.
33. Arbitral proceedings record has copy of letter dated 26/05/2016 of Sh. Priya Darshan Kumar, Sr. Manager-Legal of respondent no. 2 addressed to second Ld. Sole Arbitrator, ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 25 of 31 requesting her to accord her consent for her appointment as Sole Arbitrator to initiate the arbitration proceedings under the Act for adjudication of the disputes between the parties in accordance with law for seeking award. In the later portion of the said letter dated 26/05/2016 there is a printed sentence "With reference to the above proposal letter for appointment as the "Sole Arbitrator", now as token of having accepted the above, return the duly signed copy of this letter", below which are the signatures of Ld. Sole Arbitrator. No copy of such letter dated 25/05/2016 was served upon the petitioner school as per arbitral proceedings record nor even at the foot of said letter there is mention of dispatch of copy of said letter to petitioner school. In the arbitral proceedings record there is copy of notice of appearance dated 09/07/2016 by second Ld. Sole Arbitrator to petitioner school for next date of hearing 12/08/2016 with respect to which on the subsequent page there is a speed post tracking report on which is stapled speed post receipt dated 13/07/2016 finding mention of article dispatched to petitioner school at KOLARI with PIN CODE:500055. As per statement of claim, agreement inter se parties, the correct PIN CODE of petitioner school is 563160. The tracking report on which speed post receipt dated 13/07/2016 is stapled does not find mention anything with respect to delivery of article. Any article dispatched to wrong PIN CODE address of addressee cannot be deemed to be served upon the petitioner school. Accordingly, the first notice dated 09/07/2016 allegedly sent by second Ld. Sole Arbitrator to petitioner school was never served upon the petitioner school. Similarly with respect to proceeding/order sheet dated 12/08/2016 of second Ld. Sole Arbitrator giving next ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 26 of 31 date of hearing 08/09/2016 allegedly sent vide speed post receipt dated 23/08/2016 cannot be presumed/deemed to be served upon the petitioner school as speed post receipt dated 23/08/2016 finds mention incorrect PIN CODE 517587 for petitioner school. It is also fact of the matter that even second Ld. Sole Arbitrator did not send any requisite disclosure in accordance with Section 12 of the Act to the petitioner school. Fact also remains that in terms of aforesaid Clause 9.1 of the Agreement in question between the parties, in case of arising of dispute(s), it was/were to be referred to an acceptable Sole Arbitrator. The respondents have not filed before second Ld. Sole Arbitrator or before this Court any document/material depicting of sending of any request/letter to petitioner school seeking acceptance of petitioner school of any Sole Arbitrator from any panel of Ld. Sole Arbitrators to be appointed for adjudicating the dispute between the parties in accordance with the afore said Clause 9.1 of the Agreement in question. Having not requested/obtained acceptance of petitioner school before appointment of second Ld. Sole Arbitrator, it cannot be said by any figment of imagination that second Ld. Sole Arbitrator was an acceptable Arbitrator to petitioner school in terms of Clause 9.1 of the Agreement in question between the parties, elicited herein above. Accordingly, composition of Arbitral Tribunal was not in accordance with the Clause 9.1 of the Agreement inter se parties. Per contra, it was a unilateral appointment of second Ld. Sole Arbitrator by respondent no. 2 vide letter aforesaid dated 26/05/2016 without any acceptance of petitioner school of appointment of second Ld. Sole Arbitrator for adjudicating of the dispute between the parties to the lis. In arbitral proceedings ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 27 of 31 record are (1) letter of Head Master of petitioner school for date of hearing 23/11/2016 before Ld. Sole Arbitrator and (2) letter dated 05/12/2016 of Secretary of petitioner school for date of hearing 15/12/2016 before Ld. Sole Arbitrator; which both letters have speed post envelopes enclosed sent to respondent no 3, Ld. Sole Arbitrator and these two letters inter alia find mention of objections of petitioner school against unilateral appointment of Ld. Sole Arbitrator without acceptability of petitioner school. Proceedings sheet/impugned 30 page arbitral award of second Ld. Sole Arbitrator find no mention of aforesaid objections of petitioner school in aforesaid two letters nor were those objections decided/dismissed by second Ld. Sole Arbitrator.
34. Ld. Sole Arbitrators did not serve any disclosure to the petitioner school under Section 12 of the Act in writing any circumstances, such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to her independence or impartiality in accordance with the Act.
35. In the case of Impex Corporation & Others vs Elenjikal Aquamarine Exports, 2007 SCC Online Ker 125, it was inter alia held that where no proper and sufficient notice is given to a party by the arbitrator, there is violation of principle of natural justice and these are also violation of Section 18 and 25 of The Act.
ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 28 of 3136. Supreme Court in the case of M/s Voestalpine Schienen GMBH Vs. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665 has construed Section 12(5) of The Act (as amended) and also the Seventh Schedule to The Act and has held that under Section 12(5) of The Act, notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. It is held that in such an eventuality, when the arbitration clause finds foul with the amended provisions i.e. Section 12(5) of The Act, the appointment of an arbitrator would be beyond pale of arbitration agreement, empowering the Court to appoint such arbitrator(s), as may be permissible. Other party cannot insist for appointment of an arbitrator in terms of the arbitration agreement. In such situation, that would be the effect of non-obstante clause contained in Section 12(5) of The Act.
37. Supreme Court in case of HRD Corporation (Marcus Oil and Chemical Division) vs. Gail (India) Limited (Formerly Gas Authority of India Ltd.), 2017 SCC OnLine SC 1024 has held that if the learned arbitrator fails to file disclosure in terms of section 12(1) of The Act read with Fifth Schedule of The Act, the remedy of the party aggrieved in that event would also be to apply under section 14(2) of The Act to the court to decide about the termination of the mandate of the arbitral tribunal on that ground.
38. As aforesaid, there is non compliance of the elicited ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 29 of 31 mandate of Section 12 of The Act by Ld. Sole Arbitrators as they did not send the disclosure in prescribed form specified in the The Act to the present petitioner embodying existence or otherwise of the grounds giving rise to justifiable doubts as to her independence or impartiality of arbitrator including arbitrator's relationship with the claimants/ Counsel for claimants.
39. In view of law laid down in the cases of (i) TRF Ltd. (supra); (ii) Bharat Broadband Network Limited (supra); (iii) Perkins Eastman Architects DPC (supra); (iv) HRD Corporation (supra); (v) Proddatur Cable TV Digi Services (supra) and (vi) M/s Omcon Infrastructure Pvt. Ltd. (supra), no arbitrator can be unilaterally appointed by the respondents/claimants. In this case at the outset vide (1) letter dated 02/02/2015 addressed by Sh. Nitesh Kumar, Sr. Manager- Legal of respondent no. 2, the first Ld. Sole Arbitrator was unilaterally appointed by respondent no. 2 without any acceptability of petitioner school and (2) letter dated 26/05/2016 of Sh. Priya Darshan Kumar, Sr. Manager-Legal of respondent no. 2, the second Ld. Sole Arbitrator was unilaterally appointed by respondent no. 2 without any acceptability of petitioner school; of such appointment for adjudicating the dispute between the parties to the lis; which was per contra to Clause 9.1 of the Agreement in question between the parties, elicited herein above. Even the mandatory disclosures in terms of The Act were not conveyed by Ld. Sole Arbitrators to the petitioner. Petitioner was not given proper notice for appointment of second Ld. Sole Arbitrator. Challenge/objections of petitioner school laid in time as per The Act against unilateral appointment of first Ld. Sole ARBTN No. 5407/2018 CPM School vs. M/s Edusmart Services Pvt. Ltd. & Ors. Page 30 of 31 Arbitrator as well as against unilateral appointment of second Ld. Sole Arbitrator; without acceptability of petitioner school were never dismissed/decided in any of the proceedings/impugned arbitral award by Ld. Sole Arbitrators. Composition of the Arbitral Tribunal was not in accordance with Clause 9.1 of the Agreement in question between the parties. The impugned award is accordingly liable to be set aside, under (A) Section 34(2)(a)
(iii) of The Act; (B) Section 34(2)(a)(v) of The Act and (C) Section 34 (2A) of The Act; as the impugned award is also vitiated by patent illegality appearing on the face of the award, as elicited in detail herein above. Reliance placed upon the cases of Associate Builders (supra), Ssangyong Engineering & Construction Co. Ltd. (supra), International Nut Alliance LLC (supra), and Impex Corporation & Others (supra).
40. For the foregoing reasons, the petition is allowed and the impugned award is set aside.
41. The parties are left to bear their own costs.
42. File be consigned to record room.
Digitally signed by GURVINDER GURVINDER PAL SINGH
PAL SINGH Date: 2021.08.10
11:44:14 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
th
On 10 August, 2021. Patiala House Court, New Delhi.
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