Bangalore District Court
Sindhu Suresh Gowda vs M/S. India Infoline Finance Limited on 15 December, 2022
1 Com.AS.No.210/2019
,
IN THE COURT OF THE LXXXVIII ADDL. CITY
CIVIL & SESSIONS JUDGE (EXCLUSIVE COMMERCIAL
COURT): BENGALURU CITY. (CCH-89)
Present: Sri. P.J. SOMASHEKARA, B.A.,LL.M,
LXXXVIII Addl. City Civil & Sessions Judge
Bengaluru City.
Dated this the 15th day of December 2022
Com.AS.No.210/2019
Plaintiffs: 1. Sindhu Suresh Gowda,
W/o.Sri. Suresh Gowda,
Aged about 37 years.
2. Suresh Gowda,
S/o.Sri.Ramaiah,
Aged about 47 years.
Both presently residing at No.2616,
4th Floor, 11th Main, 'E' Block,
2nd Stage, Rajajinagar,
Bangalore- 560 010.
(By H.M., Advocate)
-vs-
Defendants : M/s. India Infoline Finance Limited,
IIFL House, Plot No.b-23,
Sun Infotech Park, Road 16V,
Thane Industrial Area, Wagle Estate,
Thane, Maharashra- 400 604.
2 Com.AS.No.210/2019
,
Represented by its authorized signatory,
Sri.D.Raja Desiganandan.
2. Sri.C.Prasanna Venkatesh,
Advocate/Arbitrator,
'SAI NIVAS' Plote No.1,
Gems Park Avenue,
1st Main Road, Mogappair,
Chennai- 600 037.
Tamli Nadu.
(By K.H.N./A.R.B., Advocate)
JUDGMENT
This is a suit filed by the plaintiffs U/Sec. 34 of Arbitration and Conciliation Act r/w Sec. 13 (2) and (3) of the Arbitration and Conciliation Act of 1996 and sought for to set aside the award dated 01.07.2019 passed by the defendant No.2 being the Sole arbitrator in Arbitration case No.IFL (SME) E41/2019 and to grant such other relief as this court deems fit.
2. Nutshell of the plaintiff's case are as under:
The plaintiffs in their plaint have alleged that, they were received a notice dated 02.02.2019 from the defendant No.2 who is a practicing advocate at Chennai stating that, 3 Com.AS.No.210/2019 , he has been nominated as Arbitrator by the defendant No.1 in relation to the loan agreement No.SL1191466 and called upon them to appear before him on 25.02.2019 at Sai Nivas, Plot No.1, Gems Park Avenue, 1 st Main Road, (Behind Sri.Lakshmi Sai Baba Temple) Mogappair, Chennai, immediately on receipt of the said communication/notice, they have addressed a communication dated 25.02.2019 stating that, they are not agreeable for the appointment of the defendant No.2 as Arbitrator to decide the alleged disputes arisen in relation to the loan transaction contending that, the appointment of defendant No.2 as the Arbitrator is without the concurrence and the consent appointed the defendant No.2 as the Arbitrator is against the scheme of the Arbitration and Conciliation Act of 1996 and requested the defendant No.2 to treat their communication as an objection to his appointment as the Arbitrator Under section 13 of the Arbitration and Conciliation Act and requested to the defendant No.2 to desist himself from proceeding further in the matter and communication was duly served on both the defendants, copy of the 4 Com.AS.No.210/2019 , communication dated 25.02.2019 sent to the defendant No.2 with a copy of the defendant No.1. Thereafter, the defendant No.2 issued another communication dated 25.02.2019 fixing the date of hearing on 22.03.2019, on receipt of the said communication they have sent reply dated 13.03.2019 enclosing the communication dated 25.02.2019 and requested the defendant No.2 to consider the objections. The communication which was also duly served on the defendant No.2, however there was no communication either of the defendants on this regard, when the matter stood they were under a rude shock to receive the award dated 1st July 2019 said to have been passed by the defendant No.2 directing them that they were jointly and severally liable to pay sum of Rs.24,24,361.0/-
with interest, the award reflects that despite the said communication dated 25.02.2019 and 13.03.2019 sent by them to desist from proceeding further with the matter, the defendant No.2 without deciding their objections as contemplated under section 13 (3) of the act has proceeded further.
5 Com.AS.No.210/2019
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3. The plaintiffs in their plaint they further alleged that, the award which passed by the 2nd defendant is against to the principles laid down in the Arbitration and Conciliation Act, feeling aggrieved by the said award dated: 01.07.2019 passed by the 2nd defendant in Arbitration Case No. IFL(SME)E41/2019 they have approached this court contending that, the impugned award is liable to be set aside in terms of section 34 of the Arbitration and Conciliation Act, after issuing to prior notice to the defendants informing them about challenging the award dated 01.07.2019 passed by the defendant No.2 in Arbitration Case No. IFL(SME)E41/2019 and the notice was sent through registered post has been served on the defendants, the defendant No.2 passed the award dated on 01.07.2019 which was received by them during the last week of July 2019 and the present suit has been filed within the limitation by challenging the award which passed by the defendant No.2 for the following:
GROUNDS a. The impugned award passed by the defendant No.2 is illegal invalid and perverse 6 Com.AS.No.210/2019 , as the defendant No.2 though obligated under the provisions of sub-section 3 of section 13 of the Arbitration and Conciliation Act of 1996 to decide the challenge, has proceeded with the case without deciding the said objection, therefore, the award is vitiated and is liable to be set aside by virtue of section 43(2)(b) (ii) of the Act .
b. The Arbitrator has exercised jurisdiction not vested to him by adjudicating the disputes without deciding the challenge/objection under section 13 of the Arbitration and Conciliation Act.
c. As section 13 sub-section 3 makes it clear that it is mandatory for the arbitrator to decide the challenge before proceedings for the matter but the reasons best known to the defendant No.2 has proceeded further with the proceedings deciding their objection, therefore, the entire proceedings are vitiated and the impugned order is liable to be set aside on this ground alone.
d. The award which passed by the defendant No.2 was kept them in dark so far as the proceedings before the defendant No.2 after the communication dated 13.03.2019 and after the communication dated 13.03.2019, as they received the award dated 01.07.2019 and 7 Com.AS.No.210/2019 , in between there is no communication from either of the defendants, therefore, the award is liable to be set aside.
e. The communication dated 25.02.2019 they have clearly stated that, they do not agree with the nomination of the defendant No.2 as the Arbitrator to adjudicate the alleged disputes, when such being the case the defendant No.2 ought to have first decide their objection to his nomination and then proceed with the matter which is also the mandate of section 13 of the Arbitration and Conciliation Act.
f. The Arbitrator has not complied the mandatory provision of section 13 of sub- section 3 of the Arbitration and Conciliation Act has given a complete go bye to the said mandatory provision of law and has opted to ignore the objection to his appointment and proceed with the matter and the objection to the appointment to the defendant No.2 as Arbitrator, all the proceedings before him were without jurisdiction and resultantly the impugned award is also jurisdiction is liable to be set aside.
g. The impugned award is in conflict with the public policy, contrary to categorical enunciation of law of the Apex Court without 8 Com.AS.No.210/2019 , following basic principles of law and reasoning and shocking to the conscience as it is contrary to the fundamental policy of Indian Law, Justice, Morality and patently illegal which is liable to set aside.
h. The claim statement was filed by the defendant No.2 against 'Dwarakamayee Solutions' which is proprietorship concern, which is not a legal entity, therefore, the claim statement filed by the defendant No.1 before the defendant No.2 itself is not maintainable.
I. The defendant No.2 ought to have dismissed the claim statement filed by the defendant No.2 on the sole ground 'Dwarakamayee Solutions' is a proprietorship concern which is not a legal entity and cannot sue or be sued in its name.
j. The award is not only perverse but also is biased liable to be set aside, since the Arbitrator has not complied the mandatory requirement of issuing a notice in terms of section 34(5) of the Arbitration and Conciliation Act and prays for allow the suit and set aside the award dated 01.07.2019 passed by the defendant No.2.9 Com.AS.No.210/2019
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4. In response of the suit summons the defendant No.1 has been appeared through it's counsel and filed the statement of objection and defendant No.2 being the Sole Arbitrator. The defendant No.1 in its statement of objection has alleged that, the suit which filed by the plaintiffs are not maintainable in law or on facts and as per section 13(2) and (3) if the procedure adopted by the Arbitrator is disputed by any of the parties, the Arbitrator has to decide that issue first before deciding the merits of the claim subject to the condition that the aggrieved party shall file written statement within 15 days from the date of being aware of the constitution of the arbitral tribunal and the Arbitration Clause was invoked on 18.01.2019 whereby the sole Arbitrator was named and the said notice was duly served by the said Arbitrator, pursuant to the said notice the Sole Arbitrator issued a notice dated 22.02.2019 informing the parties to appear before it on 25.02.2019, inspite of the receipt of the said notice, the plaintiffs did not appear before the tribunal and filed its claim statement on 25.02.2019 before the Arbitral Tribunal, thereafter, the 10 Com.AS.No.210/2019 , learned Arbitrator proceeded to hear the matter exparte and total seven hearings have taken place in the arbitral proceedings ie., on 25.02.2019, 22.03.2019, 22.04.2019, 16.05.2019, 17.06.2019, 24.06.2019, and 01.07.2019 but the plaintiffs failed to mark their presence even after the issuance of the notice dated 22.02.2019 sent to the last known address by registered letter acknowledged due, which constitute sufficient service as per the arbitral award dated 01.07.2019 and the Sole Arbitrator passed the arbitral award dated 01.07.2019 and in the arbitral award not mentioned any communication dated 25.02.2019 as alleged by the plaintiffs to the Arbitrator. Therefore, when there is no such communication received by the Arbitrator, question of adjudication under sec. 13(3) of the act does not arise. Even assuming without conceding even if communication dated 25.02.2019 was issued by the plaintiffs the same was not issued within 15 days after becoming aware of the constitution of the Arbitral Tribunal as Arbitral Tribunal was constituted vide reference notice dated 31.01.2019 wherein the address of the Arbitrator was also mentioned followed 11 Com.AS.No.210/2019 , by the notice from the Arbitrator dated 22.02.2019 and both the communications are duly received by the plaintiffs and before passing of the arbitral award. The arbitral tribunal passed an Interim Order dated 22.03.2019 under section 17 of the Arbitration and Conciliation Act and passed the order for appointment of Manjunath as the receiver for taking possession and custody of the movable properties including Television, Sofa set, Washing Machine, Refrigerator, Bed, Air Conditioners of available in the address as mentioned.
5. The defendant No.1 in its statement of objection has alleged that, the arbitral tribunal passed the second Interim Order dated 20.05.2019 under section 17 of the Act directing for freezing and attaching of the amount available in the bank account of the borrower, mentioned in the schedule to the maximum amount of Rs.23,32,384.19/- and one Manjunath who is the authorized representative appointed for the said purpose and the order shall be inforce until further orders from the tribunal pending disposal of the proceedings and the said orders were also within the knowledge of the plaintiffs, inspite of being aware of the 12 Com.AS.No.210/2019 , arbitral proceedings, the plaintiffs have not chosen to appear before the Tribunal having not appeared before the Tribunal cannot file the application under section 34 of the Act to challenge the appointment of the Arbitration for any violation under section 13(3) of the Arbitration and Conciliation Act and the communication dated 25.02.2019 and 13.03.2019 are not part of the Arbitral record. The documents which are not formed part of Arbitral record, cannot be produced at the stage of Under Section 34 of the Arbitral and Conciliation Act and the proceedings U/Sec. 34 of the Arbitration and Conciliation Act is a summary proceedings, additional documents which are not formed part of the arbitral records cannot be produced before this court and there is no such documents as claimed and before adjudicating the merits of the case, so adjudicate jurisdiction point as the other aspects depends on the consequence of the jurisdiction, as Sec. 20 of the Act is very much clear the parties are free to agree to the place of arbitration failing any agreement in referred to in Sub- Section (1) the place of arbitration shall be determined by 13 Com.AS.No.210/2019 , the Arbitral Tribunal, as can be seen for the arbitration clause in the loan agreement dated 30.03.2018 mentioned that the place of arbitration shall be at Delhi and it is relevant that the plaintiffs have not chosen to replay to the arbitration reference notice dated 30.01.2019. The Arbitral Tribunal have decided the place of Chennai because of convenient of both the parties as the defendant No.1 office in Chennai and the plaintiffs are residing in Bengaluru, therefore, Chennai will be closer to the plaintiffs as compared to Delhi and it will be it's convenient and details of the Arbitrator as well as the plaintiffs the arbitration was communicated to the plaintiffs and as can be seen from the arbitration notice dated 22.02.2019 and the arbitral award dated 01.07.2019 the seat of arbitration was in Tamil Nadu in that view if aggrieved could have filed the instant petition either in Tamil Nadu or at Delhi but not in Karnataka. Therefore, this court does not have a jurisdiction in the instant matter which violation Sec. 42 of the Arbitration and Conciliation Act.
14 Com.AS.No.210/2019
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6. The defendant No.1 in its statement of objection has alleged that, the notice invoking arbitration by recall notice dated 18.01.2019 which was issued duly served on the plaintiffs, if the plaintiffs had objection to invocation of the arbitration and appointment of arbitral tribunal they would have objected to the constitution of the arbitral tribunal by filing a petition U/Sec. 11(5) of the Act within a period of 30 days which amounts to waiver in terms of section 34 of Arbitration and Conciliation Act 1996 but the plaintiffs did not objected to the constitution of the arbitral tribunal nor the appointment of the Arbitrator, even after in respect the notice which sent by the Sole Arbitrator. The plaintiffs had taken the loan of Rs. 27,50,000/- and they were defaulted in making the payment and for which produced the documents to prove that there is a outstanding due of Rs. 24,14,361.01/- which was never denied by the plaintiffs neither before the arbitral tribunal nor before this court, the scope of challenging the arbitral award under section 34 of the act is very limited and award can be set aside on the grounds which are enumerated U/Sec. 34(2) &34(2A) of the 15 Com.AS.No.210/2019 , Arbitration and Conciliation Act and the para No.1 & 2 of the plaint are matter of fact not traversed and the contents of the para No.3 is a matter of fact that is not traverse but the present suit is not maintainable either in law or on facts and the plaintiffs have filed the instant suit without the jurisdiction, without disclosing the true facts and they were playing fraud and they were sought for set aside the award dated 01.07.2019 passed by the defendant No.2, the sole arbitrator in Arbitration Case No.IFL(SME)E41/2019 which is out side the jurisdiction of this court and the contents of the para No.4 are matter of facts not traversed and the contents of the para No.5 are in complete as the plaintiffs are trying to hide the important facts and they have to strict proof of the same. The plaintiffs have approached for financial assistance for Rs.27,50,000/-, accordingly sanctioned sum of Rs.27,50,000/- in favour of the plaintiffs, they were default in repayment of the said loan, thereby loan recall notice has been issued on 18.01.2019 calling upon the plaintiffs to pay a sum of Rs.24,14,361.01/- being the loan amount outstanding together with applicable 16 Com.AS.No.210/2019 , interest and other charges as on the date of the recall of loan facility. The contents of para No.6 are totally false and the plaintiffs have to strict proof of the same and as per the arbitral award, the Sole Arbitrator issued a notice dated 22.02.2019 to the plaintiffs to appear before the Sole Arbitrator on 25.02.2019 and he has not issued any notice on 02.02.2019 as mentioned in the plaint but inspite of the notice the plaintiffs did not appear before the Learned Arbitral Tribunal therefore, the plaintiffs have placed exparte and accordingly award has been passed, the contents of the para No.7 are false and the plaintiffs have to strict proof of the same and in the award there is no mention of any communication detail dated 25.02.2019 as alleged by the plaintiffs, when there is no such communication received by the Arbitrator question of adjudication U/Sec. 13(3) of the Arbitration and Conciliation Act does not arise.
7. The defendant No.2 in his statement of objection has alleged that, the para No.8 of the plaint are false and the plaintiffs have to strict proof of the same as the Sole Arbitrator issued a notice dated 2.02.2019 informing the 17 Com.AS.No.210/2019 , plaintiffs have to appear on 25.02.2019 and there is no mention of reply which filed by the plaintiffs dated 13.03.2019 instead, the Sole Arbitrator mentioned in the award that inspite of notice sent to the plaintiffs did not appear as there was no representation made by the plaintiffs and proceeded to hear the matter exparte, accordingly, passed the Arbitral Award and denied the para No.9 of the plaint and the plaintiffs have to strict proof of the same. The award dated 01.07.2019 passed by the Sole Arbitrator is a reasoned award and the Arbitral records reflects no communication dated 25.02.2019 and reply dated 13.03.2019 made by the plaintiffs as alleged in the plaint as the plaintiffs have to strict proof of the same, when the there is no such communication received by the Arbitrator , question of adjudication U/Sec. 13(3) of the Arbitration and Conciliation Act does not arise and the contents of para No.10 are matter of fact not traversed and denied the para No.11 of the plaint and the arbitration has been chosen as Tamil Nadu or Delhi and the present petition is filed in Karnataka is not maintainable and denied the para No.12(a) 18 Com.AS.No.210/2019 , to (g) of the plaint and the plaintiffs have to strict proof of the same and stated the Sole Arbitrator passed the reasoned award in accordance with the provisions of the Act and never received a communication as alleged by the plaintiffs and denied the para No.12(h) to (m) of the plaint and the plaintiffs have to strict proof of the same as the plaintiffs have taken the loan of Rs.27,50,000/- and they were defaulted in making the payment and there was an outstanding due of Rs.24,14,361.01/- and scope of Sec. 34 is very limited to challenge the Arbitral award and the plaintiffs have not made out any case to interfere of this court and to set aside the award and prays for dismiss the suit.
8. Heard the arguments on both side..
9. The points that arise for court consideration are as under:
POINTS
1. Whether the plaintiffs have made out any of the grounds which are enumerated U/ Sec. 34 of the Arbitration and Conciliation Act to set aside the award dated 01.07.2019 passed by the defendant No.2 in Arbitration Case No.IFL(SME)E41/2019?19 Com.AS.No.210/2019
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2. What order ?
10. My findings to the above points are as under:
Point No.1: In the Affirmative;
Point No.2: As per final order, for the following;
REASONS
11. POINT No.1: The Respondents being the plaintiffs and the claimant being the defendant No.1 before the Sole Arbitrator, feeling aggrieved by the award which passed by the sole arbitrator filed the instant suit stating that, they received the notice dated 02.02.2019 from the defendant No.2 who is a practicing advocate at Chennai Court and calling upon them to appear before him on 25.02.2019 for which they have replied stating that, they were not agreeable for the appointment of the defendant no.2 as Arbitrator to decide the alleged dispute that has arisen in relation to the loan transaction, though second notice has been issued for which also replied and taken the same contention even then, the arbitrator proceeded to pass the award as exparte, though they have taken the contention as objections for appointment of Sole Arbitrator U/sec. 13(3) 20 Com.AS.No.210/2019 , of the Act it was not taken into consideration by the sole arbitrator, thereby the plaintiffs being aggrieved by the award have filed the instant suit.
12. The learned counsel for the plaintiffs in his arguments has submitted that, the award which passed by the defendant No.2 is against to the provisions of the Arbitration and Conciliation Act. Though notice has been issued to the plaintiffs dated 02.02.2019 for which the plaintiffs have replied to the said notice stating that they were not agreeable for the appointment of the defendant No.2 as arbitrator to decide the alleged disputes that has arisen in relation to the loan transaction and requested the defendant No.2 to treat the said communication as their objection for the appointment of defendant No.2 as Sole Arbitrator U/Sec. 13 of Arbitration and Conciliation Act, though second notice has been issued for which also the plaintiffs have properly replied and taken up the contention that they have not agreed for the appointment of the defendant No.2 as the Sole Arbitrator, though the communications have been served on the defendants but 21 Com.AS.No.210/2019 , the defendant No.2 being the Sole Arbitrator without adjudication of objection and the contention which taken by the plaintiffs proceed to pass the award and the said facts was came to their notice very recently, thereby they have filed the instant suit, though the defendant No.1 in the statement of objection has taken up the contention no communication has been served on the defendant No.2 and the plaintiffs have not challenged the loan which availed by them instead they have challenged the appointment of the defendant No.2 as Sole Arbitrator and this court having the jurisdiction to adjudicate the matter which filed by the plaintiffs. The plaintiffs have made out the grounds which are enumerated U/sec. 34 of the Arbitration and Conciliation Act to set aside the award which passed by the second defendant and the materials on record reflects the defendant No.1 alone appointed the Sole Arbitrator which against to the provisions of Arbitration and Conciliation Act. If the award which passed by the defendant No.2 is not set aside as prayed for the plaintiffs will be put to irreparable loss and 22 Com.AS.No.210/2019 , injustice and prays for allow the suit and set aside the award which passed by the defendant No.2.
13. Per contra, the learned counsel for the defendant No.1 in his arguments has submitted that, the suit which filed by the plaintiffs are not maintainable in law or on facts and the plaintiffs have filed the instant suit against the defendants only with an intention to harass the defendant No.1 instead comply the arbitral award which passed by the defendant No.2 and this court has no jurisdiction to adjudicate the matter which is not dispute. In view of section 20 of the Arbitration and Conciliation Act, since the loan agreement reflects, if the plaintiffs aggrieved by the award which passed by the sole arbitrator the plaintiffs have to challenge the same either at Tamil Nadu Court nor at Delhi Court but the plaintiffs have filed the instant suit before this court as this court lack of jurisdiction in view of sec. 20 of the Arbitration and Conciliation Act and the award which passed by the Sole Arbitrator is silent about the communication which alleged to have been issued by the plaintiffs. If at all the plaintiffs in response of the notice 23 Com.AS.No.210/2019 , have communicated to the defendant No.2 as their objection for the appointment of the defendant No.2 as the Sole Arbitrator and the Sole Arbitrator would have mentioned the communication in the award but in the award there was no reference regarding the communication as alleged by the plaintiffs and prays for dismiss the suit.
14. It is an admitted fact, the plaintiffs have filed the instant suit challenging the award dated 01.07.2019 passed by the defendant No.2 in Arbitration Case No.IFL(SME)E41/2019 on the ground that the Sole Arbitrator has not complied U/Sec. 13 of the Arbitration and Conciliation Act before proceedings further, therefore, before considering the arguments which advanced by the both counsels and the materials on record, it is just and necessary to consider following legal aspects for the proper appreciation of the arguments and the material and record.
1. What is arbitration?
2. When court can interfere with arbitral award?
3. What is the scope of Court's power to interfere with the arbitral award?
4. What are the grounds are required to set aside the award?
5. Setting aside of arbitral award when permissible?
24 Com.AS.No.210/2019
, Let me decide one by one for proper appreciation of the materials on record. Thus this court drawn its attention on Sec.2(1)(a) of the Arbitration and Conciliation Act, 1996 which reads like this:
2(1)(a). The definition arbitration means any arbitration whether or not administered by permanent arbitral institution. Arbitration is a private dispute resolution mechanism agreed upon by the parties. Arbitration is a binding voluntary alternative dispute resolution process by a private forum chosen by the parties.
Arbitration is a process of settlement extra curses curiae and the parties are at liberty to choose their judge. "The essence of arbitration without assistance or intervention of the court is settlement of dispute by a tribunal of the own choosing of the parties." Law of arbitration aids in implementation of arbitration agreement contract between the parties which remains a private adjudication by a forum consequently chosen by the parties and made on consequential reference.
Now let me know when court can interfere with the arbitral award. Thus this court drawn its attention on Sec.34(43) of the Arbitration and Conciliation Act, 1996 which reads like this:
43. Principles of interference with arbitral award:-
The principles of interference with an arbitral award under Sec.34(2) of the Act are as follows:
(1) An award, which is -25 Com.AS.No.210/2019
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(i) contrary to substantive provisions of law; or
(ii) The provisions of Arbitration and Conciliation Act, 1996, or
(ii) against the terms of the respective contract; or
(iv) Patently illegal or
(v) Prejudicial to the rights of the parties; is open to interference by the court under Sec.34(2) of the Act.
(2) The award could be set aside if it is contrary to:
(a) fundamental policy of Indian Law; or
(b) the interest of India; or
(c) justice or morality.
(3) The award could also be set aside, if it is so unfair and unreasonable that it shocks the conscience of the court.
(4) It is open to the court to consider whether the award is against the specific terms of the contract and if so interfere with it on the ground that it is patently illegal and opposed to the public policy of India.
So by virtue of the provision which stated above, the court can interfere with the arbitral award in the grounds which mentioned above.
Now let me know what is the scope of Court's power to interfere with the arbitral award? Thus this court drawn its 26 Com.AS.No.210/2019 , attention on Sec.34(34) of the Arbitration and Conciliation Act which reads like this;
Scope of Court's power to interfere with the arbitral award:
The scope of the interference by the court's in regard to arbitral award is limited. Courts do not sit in appeal over the findings and decision of the arbitrator, nor can it reassess or re- appreciate evidence or examine the sufficiency or otherwise of the evidence.
So by virtue of the provision which stated supra, the scope of interference by the court in regard to the arbitral award is limited scope. The scope of interference under Sec.34 of the Act is limited in view of the judgment of the Hon'ble Supreme Court of India which reported in AIR 2003 SC 2629 in between Oil and Natural Gas Corporation Ltd., V/s Shah Pipes Ltd., and in the said judgment, their Lordship held that;
'an award can be set aside if it is contrary to fundamental policy of Indian Law, the interest of India, justice or morality, if it is patently illegal and unfair and unreasonable it shocks the conscience of the court'.
Now let me know what are the grounds are required to set aside the award which passed. Thus this court drawn its attention on Sec.34(18) of the Arbitration and Conciliation Act which reads like this:27 Com.AS.No.210/2019
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18. Grounds to set aside award:- Under the new Act, 1996 misconduct of arbitrator is no ground to set aside an award but court may set aside an award in the following grounds:
(1) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties.
(2) falling such agreement, the composition of arbitral tribunal was not in accordance with the part I of the Act.
(3) if the arbitral proceeding was not in accordance with -
(a) the agreement of the parties.
(b) failing such agreement - the arbitral procedure was not in accordance with part I of the Act. However exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of part I of the Act from which parties cannot derogate;
(c) if the award passed by the arbitral tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.
An award can be set aside, if it is against the public policy of India that is to so it is contrary to:
(1) fundamental policy of Indian law, (2) the interest of India, or 28 Com.AS.No.210/2019 , (3) justice or morality , or (4) if it is patently illegal.
It could be challenged -
(a) as provided under Sec.13(5); and
(b) Sec. 16(6) of the Arbitration and conciliation Act. So the court can set aside the award, if the grounds found which stated supra.
So if the petitioner is made out the grounds which stated supra, court can set aside the award. Now let me know about the setting aside of arbitral award when permissible. Thus this court drawn its attention on Sec.34(4) of the Arbitration and Conciliation Act, 1996
4. Setting aside of arbitral award when permissible:-
That the court can set aside the arbitral award under Sec.34(2) of the Arbitration and Conciliation Act if the party making the application furnishes the proof that:
(i) a party was under some incapacity
(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 time being in force.
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or otherwise unable to present his case.
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms 29 Com.AS.No.210/2019 , of the submission to arbitrator or it contains visa decisions on matters behind the scope of the submission to arbitration.
(2) The court may set aside the award: (I) (a) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties.
(b) falling such agreement, the composition of the arbitral tribunal was not in accordance with part-1 of the Act.
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in accordance with part-1 of the Act.
However exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the agreement should not be in conflict within the provisions of part-1 of the Act from which the parties cannot derogate.
(c) If the award passed by the arbitral tribunal is in contravention of provisions of the Act or any other substantive law governing the parties or is against the terms of the contract. (3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:
(a) fundamental policy of Indian Law;
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.30 Com.AS.No.210/2019
, (4) It could be challenged-
(a) as provided under Sec.13(5); and
(b) Section 16(6) of the Act."
"B. Further held as follows in this case: (1) The impugned award requires to be set aside mainly on the grounds:
(I) There is specific stipulation in the agreement that the time and date of delivery of the goods was the essence of the contract;
(ii) in case of failure to deliver the goods within the period fixed for such delivery in the schedule, ONGC was entitled to recover from the contractor liquidated damages as agreed;
(iii) it was also explicitly understood that the agreed liquidated damages were genuine pre- estimate of damages;
(iv) on the request of the respondent to extend the time limit for supply of goods, ONGC informed specifically that time was extended but stipulated liquidated damages as agreed would be recovered;
(v) liquidated damages for delay in supply of goods were to be recovered by paying authorities from the bills for payment of cost of material supplied by the contractor;
(vii) there is nothing on record to suggest that stipulation for recovering liquidated damages was by way of penalty or that the said sum was in any way unreasonable.
(viii) in certain contracts, it is impossible to asses the damages or prove the same. Such situation is taken care by section 73 and 74 of the Contract Act and in the present case by specific terms of the contract" - Oil and Natural Gas Corporation V Shah Pipes Ltd. (2003)5 SCC 705 : AIR 2003 SC 31 Com.AS.No.210/2019 , 2629; see also Moona Abousher V M/s.
Cholamandalam DBS Finance Ltd. AIR 2019 Mad
233.
15. Now keeping the provisions which referred above in mind, now let me know the materials and the arguments which advanced by the both counsels. It is an admitted fact, the defendant No.1 being the finance limited a private company incorporated under the companies act and a banking company within the Banking Regulations Act 1949 and the plaintiffs set to be the borrower and co-borrowers, as the plaintiffs were approached the defendant No.1 for financial assistance, accordingly loan of Rs. 27,50,000/- has been sanctioned, when they were defaulted in making the payment to the defendant No.1, a Sole Arbitrator has been appointed and who passed the award. Now the plaintiffs have come up with instant suit by challenging the award on the ground that they have raised the objection/written statement by way of reply to the notice for appointment of the defendant No.2 as Sole Arbitrator, thus this court drawn it's attention on Sec. 13 of the Arbitration and Conciliation Act which reads like thus:
32 Com.AS.No.210/2019
, (1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.
(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-
section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.
(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the
other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.
(4) If a challenge under any
procedure agreed upon by the
parties or under the procedure
under sub-section (2) is not
successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.
33 Com.AS.No.210/2019
,
(5) Where an arbitral award is
made under sub-section (4), the
party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.
(6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.
On close reading of the above provision, it is clear the parties are free to agree on a procedure for challenging an arbitrator a party who intents to challenge an arbitrator shall within 15 days after becoming the aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances refer to in Sub-Section (3) of section 12 send a written statement of the reason for the challenge to the arbitral tribunal unless the arbitrator challenged Under sub section (2) withdraw from his office the other party agree to the challenge the arbitral tribunal shall decide on the challenge, if the challenge under any procedure agreed 34 Com.AS.No.210/2019 , upon by the parties or under the procedure under sub- section (2) is not successful the arbitral tribunal shall continue the arbitral proceedings. So, one thing is clear whenever the party challenged appointment of arbitrator shall file written statement within 15 days after becoming aware of the constitution of the arbitral tribunal and the arbitrator shall decide on the challenge, then proceed further, admittedly as per the notice/letter dated 25.02.2019 which is on record is very much clear that, the plaintiffs have received the notice from the defendant No.2 on 02.02.2019 and issued reply/written statement to the said notice on 25.02.2019 stating that, they have no concurrence or consent for appointment of the Sole Arbitrator, since no concurrence of consent has been obtained from them for appointment of sole arbitrator and the appointment of the sole arbitrator is against to the provisions of Arbitration and Conciliation Act and the defendant No.1 alone appointed the Sole Arbitrator which is against to the provisions of Arbitration and Conciliation Act , thereby the letter which sent to the defendant No.2 consider as their written objections in view 35 Com.AS.No.210/2019 , of Sec. 13 of the Arbitration and Conciliation Act. So, in view of section 13 of the Arbitration and Conciliation Act soon after coming to know about the constitution of arbitral tribunal any party can challenge the appointment of the arbitrator within 15 days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances refer to in Sub-Sec.(3) of Sec. 12 of Arbitration and Conciliation Act, admittedly as per the averments of the plaint the plaintiffs have received the notice on 02.02.2019 from the defendant No.2 and they have given the written objection by way of reply to the said notice on 25.02.2019 which is very much clear that the plaintiffs have given the written statements by way of reply to the notice, therefore once the objection for appointment of the Sole Arbitrator has been received by the defendant No.2 he shall decide the challenge first before proceeding further but in the instant case the reasons best know to the defendant No.2 has violated the provisions of section 13 of the Arbitration and Conciliation Act, when the provision mandate on the defendant No.2 shall decide the challenge which 36 Com.AS.No.210/2019 , challenged by the plaintiffs for appointment of the Sole Arbitrator but the reasons best know to the defendant No.2 has no taken into consideration of the objection/written statement which sent by the plaintiffs.
16. It is an admitted fact, the learned counsel for the defendant No.1 while canvasing his arguments has submitted that, the the plaintiffs have not issued any communication to the defendant No.2 otherwise the defendant No.2 would have narrated the said facts while passing the award and the award is silent regarding the written statement nor the communication which sent by the plaintiffs to the defendant No2. It is an admitted fact the letter dated 25.02.2019 is very much clear the plaintiffs have written a letter/written statement to the defendant No.2 ie., the Sole Arbitrator and shown the address as appeared in the award and it is not the case of the defendant No.1 the address shown in the letter/written statement dated 25.02.2019 is not the address of the defendant No.2, if that is so the matter would have been different but the defendant No.1 has not disputed the address of the defendant No.2 as shown in the letter dated 37 Com.AS.No.210/2019 , 25.02.2019 and the postal receipt which is on record reflects the plaintiffs have sent a letter/written statement to the defendant No.2 through RPAD. Thus, this court drawn it's attention on sec. 27 of General Clause Act which reads like thus;
"27 Meaning of service by post.
Where any 49 [Central Act] or
Regulation made after the
commencement of this Act
authorizes or requires any document to be served by post, whether the expression serve or either of the expressions give or send or any other expression is used, then, unless a different intention appears, the service shall be deemed to be effected by properly addressing, pre-paying and posting by registered post, a letter containing the document, and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post".38 Com.AS.No.210/2019
, The above provision is very much clear after the commencement of General Clauses Act 1897, authorizes or requires any document to be served by post, whether the expression serve or either of the expressions give or send or any other expression is used then unless different intention appears the service shall be deemed to be effected by properly addressing pre-paying and posting by register post. In the instant case the defendant No.1 has not disputed the address of the defendant No.2 as shown in the letter dated 25.02.2019 nor disputed the postal receipt which is on record. So, the provision which referred above empowers that unless a different intention appears the service shall be deemed to be effected by properly addressing, thus, if the provision which referred above and the letter dated 25.02.2019 are taken into consideration that the plaintiffs have sent their written statement by way of letter challenging the appointment of the defendant No.2 as Sole Arbitrator and the same was communicated to the defendant No.2 but the reasons best know to the defendant No.2 has not complied U/Sec. 13 (3) of the Arbitration and 39 Com.AS.No.210/2019 , Conciliation Act,merely on the ground the Sole Arbitrator has not referred the communication/written statement which sent by the plaintiffs to the defendant No.2, it does not mean that the plaintiffs have not sent any communication to the defendant No.2, therefore the appointment of the Sole Arbitrator itself is illegal.
17. The learned counsel for the plaintiffs while canvasing his arguments has rightly submitted that the defendant No.1 alone appointed the Sole Arbitrator without the consent of the plaintiffs. Thus in order to know whether the plaintiffs were consented for appointment of the Sole Arbitrator or whether the defendant No.1 alone was appointed the Sole Arbitrator to adjudicate the matter which is in dispute, thus this court drawn it's attention on the award which passed by the defendant No.2 which reads like thus:
"I C.Prasanna Venkatesh,
advocate practicing at the
Hon'ble High Court of Madras
having been duly appointed as
the Arbitrator by the claimant in
terms of the Arbitration Clause
contending the loan agreement
40 Com.AS.No.210/2019
,
between the parties and having
accepted the said nomination as
the Sole Arbitrator".
So, if the recitals which appeared in the award as
referred above is taken into consideration it is clear, the
defendant No.1 alone appointed the Sole Arbitrator and no concurrence nor the consent obtained from the plaintiffs. Thus, this court drawn its attention on Sec. 11 of the Arbitration and Conciliation Act.
"1 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.
(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.41 Com.AS.No.210/2019
, (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, upon request of a party, by the Chief Justice or any person or institution designated by him.
(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, upon request of a party, by the Chief Justice or any person or institution designated by him.
(6) Where, under an
appointment procedure agreed upon
by the parties,
42 Com.AS.No.210/2019
,
(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, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
(7) A decision on a matter entrusted by sub-section (4) or sub-
section (5) or sub-section (6) to the Chief Justice or the person or institution designated by him is final.
(8) The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to--
(a) any qualifications required of the arbitrator by the agreement of the parties; and 43 Com.AS.No.210/2019 ,
(b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator.
(9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.
(10) The Chief Justice may make such scheme 1 as he may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-
section (5) or sub-section (6) to him.
(11) Where more than one request has been made under sub-
section (4) or sub-section (5) or sub-
section (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide on the request.
44 Com.AS.No.210/2019
,
(12) (a) Where the matters
referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in an international commercial arbitration, the reference to ''Chief Justice'' in those sub-sections shall be construed as a reference to the ''Chief Justice of India''.
(b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in any other arbitration, the reference to "Chief Justice" in those sub-sections shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate and, where the High Court itself is the Court referred to in that clause, to the Chief Justice of that High Court".
The above provision is very much clear a person of any nationality may be an Arbitrator unless otherwise agreed by the parties and the parties are free to agree on a procedure for appointing for an Arbitrators, if the party fails to appoint 45 Com.AS.No.210/2019 , an Arbitrator within 30 days from the receipt of the request to do so from the other party appointment shall be or 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 the case of Arbitration other than International Commercial Arbitration.
18. So, in the instant case the reasons best know to the defendant No.1 has not issued a notice to the plaintiffs for their concurrence nor the consent for appointment of the Sole Arbitrator to adjudicate the matter which is in dispute but the reasons best know to the defendant No.1 alone appointed the Sole Arbitrator in violation of the provision which referred above for which the learned counsel for the plaintiff has drawn the court attention on the judgment of the Hon'ble Supreme Court which reported in 2019SCC online SC1517 in between Perkins Eastman Architects DPC and Another Vs. HSCC India Limited. In the said judgment their lordship held that, where the managing director himself is named as an Arbitrator with an additional power to appoint any other person as an Arbitrator and the 46 Com.AS.No.210/2019 , Managing Director is not to act as a Arbitrator himself but is empowered or authorize to appoint any other person of his choice or decision as an Arbitrator if in the first category of the cases the Managing Director was found incompetent it was because of the interest that, he would be set to be having in the outcome or result of the dispute, when the Managing Director became ineligible by operation of law, is he still eligible to appoint an Arbitrator, the ineligibility refer 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 ineligible to act as an Arbitrator but also not be eligible to appoint any one else as an Arbitrator. In the instant case the defendant No.1 not only having the interest over the subject matter but also who is ineligible to appoint the Sole Arbitrator. Therefore, the decision which relied by the learned counsel for the plaintiffs is directly applicable to the case on hand.
19. The learned counsel for the plaintiff has drawn the court attention on the judgment of Hon'ble High Court of Karnataka passed in CMP No. 100006/2021 in between 47 Com.AS.No.210/2019 , M/s. Sureshgoel and Associates Vs. Indian Institute of Technology. On careful perusal of the said judgment in the judgment the lordship held that, where the document of the contract empowers only one of the parties to the dispute to appoint the Sole Arbitrator such power will have an element of exclusivity in determining or charting the course for dispute resolution and the person who has an interest in the outcome or decision of the dispute must not have the empower to appoint the Sole Arbitrator. In the instant case also the defendant No.1 alone appointed the Sole Arbitrator who is also having the interest in the outcome and decision of the dispute therefore, the judgment which relied by the learned counsel for the plaintiffs is directly applicable to the case on hand.
20. The learned counsel for the defendant No.1 has much argued that this court has no jurisdiction to entertain the petition or to decide the issue, since this court has no jurisdiction to adjudicate the matter which is in dispute. Admittedly the award which is on record reflects that the address of the plaintiffs shown as Bengaluru and the 48 Com.AS.No.210/2019 , documents which on record are reflects the transaction was taken place relating to the documents in Bengaluru and the award which reflects that, the defendant No.1 alone appointed the Sole Arbitrator who is the practicing advocate at Madras and award has been passed by the Sole Arbitrator at Chennai and the defendant No.1 in the objection statement has stated the defendant No.1 appointed the Sole Arbitrator deciding the issue which involved for the convenient of the parties at Chennai but whereas the SME loan agreement in clause 16.2 is very much clear any controversy, conflict or dispute of any nature arising out of or relating to or in connection with the provisions of the agreement shall be settled exclusively and finally by arbitration in accordance with the provisions of Arbitration and Conciliation Act 1996. All arbitration proceedings shall take place in Delhi or such a place as may decided by the lender in it's sole discretion, the language used in the arbitral proceedings shall be in English the parties agree that the award of such Sole Arbitrator shall be final and binding upon the parties and nothing contained herein above shall 49 Com.AS.No.210/2019 , prejudice the lender's right to have recourse to any court having a jurisdiction for the purpose of interim or interlocutory orders. On this aspects the learned counsel for the defendant No.1 has drawn the court attention on the following judgments:
1. 2020 (4) SCC310 2.2021 SCC online Madras 1126 3.2017 (7) SCC678 4.2020 (4) SCC234 On careful perusal of the above judgments in the said judgments their lordship held that, once the seat of the arbitration is designated the same operates as an exclusive jurisdiction clause as a result of which only the courts where the seat is located would have jurisdiction to the exclusion of all other courts. Where the part of the cause of action may have arisen, where it is found on the facts of a particular case that, either no seat is designated by agreement or has not been so determine by the arbitral tribunal or the so called seat is only a convenient venue then their may be several courts where part of the cause of action arises. In the instant case the arbitral clause which appeared in the loan 50 Com.AS.No.210/2019 , agreement reflects the place as may be decided by the lender in its sole discretion and the agreement has not been shown exclusive jurisdiction clause and in the judgment which relied by the defendant No.1 is very much clear when no seat is designated by agreement or has not been so determined by the arbitral tribunal or the so called seat is only a convenient venue and there may be several courts where a part the cause of action arises and in the instant case if the materials on record and the address of the plaintiffs are taken into consideration part of the cause of action was arose in Bengaluru and no seat has been designated by virtue of the loan agreement which taken place in between the plaintiffs and the defendant No.1, therefore, I do respect to the judgments which relied by the learned counsel for the defendant No.1 but the facts and circumstances of the present case and the judgments which relied are different.
21. It is an admitted fact, the plaintiffs have challenged the appointment of the Sole Arbitrator but the same has not been decided by the Sole Arbitrator before proceeding further, in view of the discussion which stated supra and also other grounds which 51 Com.AS.No.210/2019 , raised by the plaintiffs are very much clear the facts which pleaded in the plaint falls within the ambit of section 13 & 34 of the Arbitration and Conciliation Act, therefore, the award which passed by the Sole Arbitrator is deserved for set aside. Hence, I am of the opinion that the point No.1 is answered as Affirmative.
22. POINT NO.2: In view of my answer to point No.1 as stated above, I proceed to pass the following;
ORDER The petition under Sec.34 of the Arbitration and Conciliation Act, 1996 filed by the plaintiff is hereby allowed and set aside the award dated 01.07.2019 passed by the defendant No.2 the Sole Arbitrator in arbitration case No.IFL(SME)E41/2019.
No order as to costs.
(Dictated to the Stenographer, thereof corrected by me and then pronounced in the open court on this the 15 th day of December, 2022) (P.J. Somashekara) LXXXVIII Addl. City Civil & Sessions Judge, (Exclusive Commercial Court), Bengaluru City.
52 Com.AS.No.210/2019,