Bangalore District Court
Shakoun Jain vs M/S Jana Lakshmi Financial Services Pvt ... on 16 January, 2024
IN THE COURT OF LXXXIX ADDL.CITY CIVIL &
SESSIONS JUDGE, BENGALURU. (CCH-90)
Present: Sri.S.J.Krishna, B.Sc., LL.B.,
LXXXIX Addl.City Civil &
Sessions Judge, Bengaluru.
Dated: 16th JANUARY 2024
Com.A.P.No.23/2023
Petitioners/ 1. Sri.SHAKOUN JAIN,
PLAINTIFFS : S/O.Sri.Rakesh Kumar Jain,
Aged about 46 years,
2. Sri.RAKESH KUMAR JAIN,
S/O.Late Sri Roshan Lal Jain,
Aged about 71 years,
Both are residents of
No:4/104 A,
BALUGANJ,
AGRA
(By Sri.A.Munireddy &
Sri.R.Rangaswamy, Advocates)
V/s.
Respondent/ M/s.JANALAKSHMI FINANCIAL
DEFENDANT : SERVICES PVT., LTD.,
Rajshree Saroja Plaza,
No:34/1, Andree Road,
Shanthi Nagar,
BENGALURU,
Through its Manager.
Also having Branch at:
No:201, 2nd Floor,
Puneet Vindravan,
AGRA
Through its Branch Manager.
(Ex-parte)
/2/
Com.A.P.No.23/2023
Date of Institution of suit : 08.02.2023
Nature of suit : U/sec.34 of the Arbitration and
(suit on pronote, suit for Conciliation Act,1996
declaration and
possession suit for
injunction, etc.,)
Date of commencement : -
of recording of evidence
Date of judgment : 16.01.2024
Total duration : Year/s Month/s Day/s
00 11 08
(S.J.KRISHNA)
LXXXIX ADDL.CITY CIVIL &
SESSIONS JUDGE, BENGALURU.
(CCH-90)
JUDGMENT
The Plaintiffs herein had filed Arbitration Mis. No.1210/2016 before the Hon'ble Commercial Court at Agra. The Hon'ble Commercial Court, Agra was pleased to return the petition to the plaintiffs herein to present the case before the Court have jurisdiction vide order dated:01.11.2022. Accordingly, the Petitioners/plaintiffs have presented this case before this Court on 08.02.2023. The case is numbered as Com.A.P.No:23/2023.
02. The Plaintiffs have filed this suit under section 34 of Arbitration & Conciliation Act, 1996 praying the Court to set aside the Award dated:09.09.2016 passed by the /3/ Com.A.P.No.23/2023 learned Arbitrator in Arbitration Case No.304/2016; and grant costs and such other reliefs.
03. The Plaintiff No.1 herein is the borrower and Respondent No:1; the Plaintiff No:2 is the personal guarantor and Respondent No.2, the Defendant herein is the Claimant before the learned Arbitral Tribunal in Arbitration Proceedings No:304/2016. For the sake of convenience, the Parties to the present suit are referred to 'Claimant' and 'Respondent No:1', 'Respondent No:2 as before the learned Sole Arbitrator in Arbitration Proceedings No:304/2016.
The summary of the case of the Claimant before the Arbitral Tribunal in Arbitration Proceedings No:304/2016 is as under:
04. The Claimant is a Non-banking financial Company and Micro Financial Institution (NBFC-MFI) registered with the RBI and engaged in Micro Credit and Micro Financial Assistance to Sub Prime and Middle Class Income Groups and Enterprise Loans to Micro and Small Enterprises. The Claimant is also registered under the Companies Act-1956.
05. The Respondent No:1 is a proprietary firm represented by its proprietor Mr.SHAKOUN JAIN, carrying on business under the name and style "M/S.Suraj Foundry". The Respondent No:2 is the Personal Guarantor for the Respondent No.1.
/4/ Com.A.P.No.23/2023
06. The Respondent No:1 represented by its proprietor had availed an Enterprise Loan of ₹.15,00,000/-from the Claimant vide Agreement No.30358650001807 dated:05.12.2013 for Working Capital and had agreed to repay the loan in 35 Equated Monthly Installments of ₹.56,520/-. The Respondents have executed the necessary loan documents including Loan Cum-Hypothecation Agreement containing the terms and conditions of Loan. The Respondent No:2 has offered personal guarantee for the loan transaction and has undertaken to comply with all the terms and conditions of the Agreement dated:05.12.2013. The Respondents had also agreed that in the event of default in repayment of the loan through agreed EMIs, the respondents are liable to pay overdue charges and other additional financial charges from the date of default till payment without prejudice to other rights of the Claimant under the Loan Agreement.
07. The Respondents were very irregular in repayment of loan and committed serious defaults. On account of nonpayment of EMIs, the arrears accumulated and in spite of repeated requests and demands they have failed to adhere to the payment schedule. The Claimant got issued a legal notice dated:20.02.2016 calling upon the respondents to make payments and amicably settle the dispute by paying the entire loan outstanding. In spite of repeated requests and demands they have failed to regularize the loan account. As per the Statement of Account and /5/ Com.A.P.No.23/2023 Foreclosure Statement dated:23.03.2016, the Respondents were liable to the Claimant a sum of ₹.10,02,41.87. Thus the Claimant was constrained to recall the loan facility by invoking Clause 27(1)(b) & (c) of Loan Agreement and referred the matter for Arbitration.
08. The learned sole Arbitrator had accepted the appointment and entered the reference. The claimant filed the Claim statement before the Arbitral Tribunal.
09. The Learned Arbitral Tribunal has noted that the notice dated:30.05.2016 to the respondents to their correct and last known address. The Notice issued to the Respondent No:1 returned un-served and the notice issued to the Respondent No:2 was served. The Arbitral Tribunal has further noted that as per the request made by the respondent dated:15.06.2016 the case was adjourned for appearance of Respondents to 20.07.2016. However, the Respondents did not appear before it and in spite of adjourning the case for appearance of Respondents to 10.08.2016, 20.08.2016, 29.08.2016 the Respondents remained absent. Hence, the Arbitral Tribunal proceeded to record the evidence of the Claimant. The Learned Arbitral Tribunal has noted that in spite of issuance of letter dated:30.08.2016 intimating the Respondents through RPAD to appear on 06.09.2016, the Respondents remained absent.
/6/ Com.A.P.No.23/2023
10. The Learned Arbitral Tribunal has accepted the affidavit evidence of the Claimant and marked Ex.P1 to Ex.P14. After the conclusion of the recording of the evidence upon hearing the oral arguments of the Claimant has passed the Award on 09.09.2016 as under:
AWARD
(a) The Respondent/s to pay the Claimant M/S.JANALAKSHMI FINANCIAL SERVICES PVT. LTD., a sum of ₹.10,02,431-87 (Rupees Ten Lakhs Two Thousand Four Hundred And Thirty One And Paisa Eighty Seven Only) with interest @ 24% p.a. from the date of actual claims statement till the dte of actual realization.
(b) The Arbitration cost and the fees fixed at ₹.4,000/-
(Rupees Four Thousand only) shall be equally paid by the Claimants and the Respondent.
(c) Initially the Arbitration Cost and the fees shall be paid by the claimant and later recovered from the Respondent.
(d) And the parties shall bear their own cost incidental to the present Arbitration proceedings.
(e) The Copy of the Award is sent to the respective parties/Respondents by Regd. Post.
11. The Plaintiffs/Respondent No.1 and 2 being aggrieved by the impugned award have filed the present suit under Section 34 of Arbitration and Conciliation Act.
12. It is the case of the Plaintiffs that they were the partners of M/S.Suraj Foundry, a partnership firm. The Partnership Firm had borrowed ₹.15,00,000/- from the Claimant and agreed to repay the loan in 35 EMIs of ₹.56,520/- each commencing from 10.01.2014. The /7/ Com.A.P.No.23/2023 partnership firm had paid EMIs from 10.01.2014 to 18.02.2016.
13. The partnership firm was reconstituted on 31.12.2014. Wherein the Plaintiff No:1 and another partner Sri.Suman Jain retired from the firm and firm continued with its continuing partners. On 23.03.2015 the partnership firm was again reconstituted and the plaintiff No:2 was retired from the firm. The existing partners viz., 1. Sri.Rajeev Mohan Saxena, 2) Sri.Rajesh Mohan Saxena, 3) Sri.Runchit Mohan Saxena, 4) Sri.Rishabh Mohan Saxena and 5) Sri.Rakesh Kumar Jain. The Plaintiff No:2 has notified the claimant about his retirement vide letter dated:02.05.2015. The Claimant while referring the dispute for Arbitration has suppressed the retirement of plaintiffs No:1 and 2 from the partnership and projected the Plaintiff No:1 as the Proprietor. All these factual aspects were not considered by the Arbitral Tribunal while passing the impugned Award. This reflects the casual and cavalier approach of the Arbitrator and based on misreading of the relevant documents.
14. The lending was to the partnership firm and not to the plaintiffs. The impugned Award is passed against plaintiffs instead of partnership firm. The partnership firm was not arrayed as a party in the Arbitration Proceedings.
/8/ Com.A.P.No.23/2023
15. The rate of interest awarded by the Tribunal at 24% p.a. is excessive and is against the settled judicial principles.
16. The impugned Award is against most basic notions of morality and justice and in contravention with the fundamental policy of Indian Law.
17. The impugned Award suffers from several legal infirmities and is liable to be set aside.
18. Even after the publication in the New Indian Express dated:07.09.2023, the Claimant remained absent, as such the service was held sufficient and is placed exparte.
19. I have heard the arguments addressed by the learned advocate for the Plaintiffs.
20. I have gone through the materials available on record.
21. The following points arise for my determination:
(1) Whether the Plaintiffs prove that they were not given proper notice of the appointment of an arbitrator as such the Award dated: 09.09.2016 passed by the learned Sole Arbitrator in Arbitration Proceeding No:304/2016 is liable to be /9/ Com.A.P.No.23/2023 aside as per Section 34(2)(a)(iii) of Arbitration & Conciliation Act, 1996? (2) Whether the Plaintiff proves that the composition of the arbitral Tribunal and the arbitral procedure have violated Section 34(2)(a)(v) of Arbitration & Conciliation Act, 1996 and thereby the Award dated: 09.09.2016 passed by the learned Sole Arbitrator in Arbitration Proceeding No:304/2016 is liable to be set aside?
(3) What Order?
22. My findings on the above points are as follows:-
Point No. 1 & 2 : - In the AFFIRMATIVE Point No. 3 : - As per final orders for the following REASONS
23. Point No.1 & 2 : The Plaintiffs have filed this suit under section 34 of Arbitration & Conciliation Act, 1996 praying the Court to set aside the Award dated:09.09.2016 passed by the learned Arbitrator in Arbitration Case No.304/2016;and grant costs and such other reliefs.
24. The Claimant had filed the claim statement before the Learned Sole Arbitrator. The Learned Arbitral Tribunal has recorded that in spite of granting sufficient opportunities the Respondents failed to appear before the Tribunal as such they were placed ex-parte and proceeded with the case.
/10/ Com.A.P.No.23/2023
25. The Learned Arbitral Tribunal has received the affidavit evidence of the Claimant and marked Ex.P1 to Ex.P14 After the conclusion of trial, after hearing the arguments of the Claimant Company, the learned Arbitral Tribunal has allowed the claim petition and passed the impugned award on 09.09.2016.
26. It is settled law that the Court while dealing an application under Section 34 of Arbitration & Conciliation Act, 1996 is required to exercise its jurisdiction within the frame work of Section 34 and Section 34 (2A) of the Act. The plaintiff has to establish that the impugned award is against to the fundamental law of India and must be patently illegal. In this case the Respondent No.1 is assailing the impugned Award on two counts i.e. i. The procedure adopted by the claimant/ defendant No:1 in appointment of sole arbitrator is against the terms of the loan agreement and as also against the provisions of Arbitration & Conciliation Act, 1996; the composition of Arbitral Tribunal and the procedure adopted by the learned Sole Arbitrator is not in conformity with the provisions of Arbitration & Conciliation Act, 1996.
27. In order to determine the suit it is useful to refer to Section 34 of Arbitration and Conciliation Act, 1996 which reads as under:
/11/ Com.A.P.No.23/2023 ARBITRATION AND CONCILIATION ACT, 1996 [Section : 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- (a) the party making the application establishes on the basis of record of the 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 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 /12/ Com.A.P.No.23/2023 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. 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 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, /13/ Com.A.P.No.23/2023 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.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral Tribunal will eliminate the grounds for setting aside the arbitral award.
[(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.
(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.
28. This Court under Section 34 of Arbitration and Conciliation Act, 1996 is not empowered to record the evidence or re-appreciate the evidence available before the Tribunal. Hence, the Court cannot give any credence to the facts pleaded before this Court regarding reconstitution of the partnership firm, their retirement from the firm. However, it is evident from the contents of the Impugned Award that the /14/ Com.A.P.No.23/2023 learned Arbitral Tribunal has not bestowed its attention to the status of the borrower as described in the Customer Information Sheet, wherein M/S.Suraj Foundry is clearly described as a Partnership Firm. The learned Arbitral Tribunal has not considered the question of non-joinder of partnership firm as a party to the proceeding, which is fatal to the case of the Claimant.
29. The Plaintiffs are contending that the Learned Sole Arbitrator is not an independent person. He is one among the panel of advocates of the Claimant, as such the appointment of Arbitrator by the Claimant and the proceedings conducted by the learned Arbitral Tribunal are not in conformity with the terms of loan agreement and provisions of Arbitration & Conciliation Act, 1996.
30. Clause 27(c) of Loan Agreement, provides for resolution of dispute through Arbitration, which reads as under:
ARBITRATION:
In the case of failure by the Parties to amicably resolve any of the disputes arising out of the Agreement in a manner set out above within 30 days from the date when the dispute arose, the said dispute shall be referred to sole Arbitrator nominated by the Company, by giving notice to other party/borrower. The Borrower, Co-borrower and Guarantor/s agree to refer or have no objections for referring the matter to the sole Arbitrator as appointed by the Company. The /15/ Com.A.P.No.23/2023 Arbitration Proceedings shall be governed by the Arbitration and Conciliation Act, 1996 as amended from time to time. The place of the court of Arbitration shall be Bangalore. The arbitration proceedings shall be conducted in English language. The sole arbitrator shall also decide on the costs of the arbitration proceedings.
31. A reading of Arbitration Clause contained in the Loan Agreement makes it clear that the Claimant and Respondents have agreed to resolve their dispute through the mechanism of Arbitration. They have also agreed to the procedure to be followed for appointment of Arbitrator and conduct of Arbitral proceedings.
32. The observations made in the Award show that the Claimant has appointed the sole Arbitrator vide letter dated:18.04.2016. The Claimant has presented the Claim statement before the Arbitral Tribunal on 17.05.2016.
33. It appears from the materials available on record that the Claimant Company has presented the Claim Petition before the Arbitral Tribunal on 10.06.2020 and the learned Sole Arbitrator by accepting the Claim statement has commenced the proceedings.
34. It appears from the materials available on record that the learned Arbitral Tribunal has not conveyed his acceptance to act as the Sole Arbitrator to the Claimant /16/ Com.A.P.No.23/2023 Company and Respondent No:1 and 2. The Learned Sole Arbitrator has not written any letter making Statutory Disclosure in the prescribed format, under Sixth Schedule as per Section 12(1) of Arbitration & Conciliation Act, 1996. It is not forthcoming from the observations of the learned Arbitral Tribunal that the Respondents No:1 and 2 have consented for the appointment of Sole Arbitrator Sri.S.Prasanna Vijay Kumar.
35. The Claimant Company and the learned Sole Arbitrator commenced the Arbitral Proceedings even without the Sole Arbitrator making disclosure statement. The Learned Sole Arbitrator has failed to comply with statutory requirements of making disclosure as provided under Sixth Schedule to the Act. Hence, it is clear that the Claimant as also the learned Sole Arbitrator have not followed the Mandatory Requirements contemplated under the provisions of Arbitration & Conciliation Act, 1996.
36. The Appointment of Sole Arbitrator by the Claimant has to be tested with reference to statutory provisions.
Section 11 of the ARBITRATION AND CONCILIATION ACT, 1996 provides for procedure to be followed for appointment of Arbitrator which reads as under:
[Section : 11] Appointment of arbitrators.-
(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
/17/ Com.A.P.No.23/2023 (3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.
(3A)...
(4) If the appointment procedure in sub- section (3) applies and-
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or
(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be.
(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made on an application of the party in accordance with the provisions contained in sub-section 4.
(6) Where, under an appointment procedure agreed upon by the parties,-
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, /18/ Com.A.P.No.23/2023 The appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
37. In this case it is evident that the claimant though has appointed the sole arbitrator as per Arbitration Clause of the Loan Agreement has not followed the principles of natural justice as the Claimant has failed to provide reasonable opportunity to the Respondents No:1 and 2 to either consent or dissent for the appointment of the sole Arbitrator. Thus, it is evident that the claimant has not followed the procedure prescribed under Section 11(5) and (6) of the Act while appointing the defendant No.2 as Sole Arbitrator.
38. It is useful to refer to Section 21 of the ARBITRATION AND CONCILIATION ACT, 1996, which reads as under:
[Section : 21] Commencement of arbitral proceedings Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.
/19/ Com.A.P.No.23/2023
39. As per section 21 of the Act, the arbitral proceedings in respect of dispute commences on the date on which a request for appointment of arbitrator received by the Claimant. In the impugned Award the learned Arbitral Tribunal has not made any observation regarding the fact that the the claimant had issued notice expressing the intention to appoint arbitrator to resolve the dispute to the respondents and the said notice has been served on them. It is clear that the claimant has failed to adhere to statutory requirements to be complied while seeking the appointment of an arbitrator.
40. As observed above the respondents were not provided with reasonable opportunity either to consent or dissent for the appointment of the Sole Arbitrator.
41. The Learned Sole Arbitrator has not issued any notice to the Respondents No:1 and 2 before accepting his appointment by disclosing the details of proceedings initiated by the claimant in which he has acted as arbitrator and such conduct of the arbitrator casts doubts as to the independence or impartiality of the arbitrator.
Section 12 of the Arbitration & Conciliation Act, provides grounds for challenge as under:
12. Grounds for challenge.--1[(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,--
/20/ Com.A.P.No.23/2023
(a) 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
(b) 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.
Explanation 1.--The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.
Explanation 2.--The disclosure shall be made by such person in the form specified in the Sixth Schedule.] (3) An arbitrator may be challenged only if--
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed to by the parties.
(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
(5) 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:
Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.
42. The fifth schedule to the Act at Clause 22 states that the arbitrator has to disclose that 'the Arbitrator has /21/ Com.A.P.No.23/2023 within past three years been appointed as Arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties'. Thus, it is clear that the learned Sole Arbitrator was required to disclose the details of arbitral proceedings conducted by him for the last three years where the claimant was one of the parties. The learned arbitrator has not furnished details as per schedule VI to the Act to the Respondent No:1 and 2 before accepting his appointment as the Sole Arbitrator. Col.No.5- mandates that the Arbitrator has to disclose the details as to 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 independence or impartiality, Col.No.6- mandates the Arbitrator to disclose the details of the circumstances which are likely to affect the ability to devote sufficient time to the arbitration and in particular the ability to finish the entire arbitration within TWELVE MONTHS or render an award within THREE MONTHS. The Sole Arbitrator has not disclosed anything about the attempts made by him to disclose the information as required under Schedule V of the Act. The non-disclosure of all the necessary details as required under Section 12(1)
(b) of the A & C Act, 1996 creates justifiable doubts as to the independence or impartiality of the arbitrator.
43. The respondent No: 1 and 2 are contending that the arbitrator has not acted independently is evident from /22/ Com.A.P.No.23/2023 the proceedings itself. Wherein the learned Sole Arbitrator has not even provided reasonable opportunity to the Respondent No:1 and 2 to object for his appointment and to participate in the proceedings. The materials available on record show that the learned Sole Arbitrator has not written letter accepting his appointment as the sole Arbitrator. The learned Sole Arbitrator has not made any disclosure as contemplated under Section 12(1)(b) of the Act. In such circumstances, the contentions raised by the respondent No:1 and 2 appears to have real concern about independence or impartiality of the learned Sole Arbitrator in conducting the proceedings.
44. The right of a party to appoint an Arbitrator unilaterally was examined by the Hon'ble Supreme Court in the following decision:
LAWS(SC) 2019 11 87SUPREME COURT OF INDIA Perkins Eastman Architects Dpc Vs. HSCC (INDIA) LTD.
16. But, in our view that has to be the logical deduction from TRF Limited, 2017 8 SCC 377 . 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 /23/ Com.A.P.No.23/2023 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 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, 2017 8 SCC 377 38.
45. In view of the dictum of the above precedent, it is evident that the Claimant Company had no right to appointment Arbitrator on its own unilaterally without following the procedure laid down in the Act itself. Hence, the constitution of Arbitral Tribunal was against the principles of natural justice and the provisions of Law.
/24/ Com.A.P.No.23/2023
46. The materials available on record makes it clear that the claimant has failed to follow mandatory procedure prescribed under the provisions of the Arbitration and Conciliation Act, 1996. The learned Sole Arbitrator has not followed the due procedure established under law while accepting his appointment as Arbitrator and conducting the proceedings. In these circumstances, I am of the opinion that the impugned award passed by the learned Sole Arbitrator violates the provisions of Arbitration & Conciliation Act and rendered itself liable to be set aside. Accordingly, I answer Point No:1 and 2 in the AFFIRMATIVE.
47. POINT No.3 : In view of the discussion made above and findings on Point No:1 I pass the following ORDER The Arbitral suit filed by the plaintiff under section 34 of Arbitration & Conciliation Act, 1996 to set aside the Award Dated: 09.09.2016 passed by the learned Sole Arbitrator in the Arbitration proceedings No.304/2016 is hereby allowed with costs.
As a consequence of which the impugned award Dated: 09.09.2016 passed by the learned /25/ Com.A.P.No.23/2023 Sole Arbitrator in the Arbitration proceedings No.304/2016 is hereby set aside.
(Dictated to the Stenographer, transcribed and typed by her, the corrected and pronounced by me in the Open Court on this 16th day of January 2024) (S.J.KRISHNA) LXXXIX ADDL.CITY CIVIL & SESSIONS JUDGE, BENGALURU.
(CCH-90)
****
Digitally signed
by S J KRISHNA
SJ Date:
KRISHNA 2024.02.09
01:40:28 -0500