Delhi District Court
Objector/ vs M/S Educomp Solutions Ltd on 21 September, 2019
IN THE COURT OF MS. TWINKLE WADHWA: LD. ADDITIONAL DISTRICT
JUDGE03:PATIALA HOUSE COURT:NEW DELHI DISTRICT
Arb No. 348/18
Vidyamandir School,
H no121341,
Lalapet Secundarabad,
Secundarabad, Andhra Pradesh
.....Objector/Applicant
VERSUS
1. M/s Educomp Solutions Ltd,
Having its office at No. 1211,
Padma TowerI, 5, Rajendra Place,
New Delhi110008.
2. M/s Edusmart Services Pvt Ltd
Having Its Registered office at
L74, Mahipalpur Ext.,
New Delhi110037
.... Respondents/Claimants
Date of Institution : 06.03.2018
Date of Final Arguments : 09.09.2019
Date of Decision : 21.09.2019
Conclusion : Allowed
Arb No.348/18 age 1 of 12
JUDGMENT
The Case
1. By this order, I shall dispose off the objection petition filed u/Sec 34 of Arbitration and Conciliation Act by the objector/school against the exparte Arbitral Award dated 09.05.2018 passed by Ld. Sole Arbitrator Ms. Rekha Gupta (Advocate) whereby petitioner has been directed to pay a sum of Rs. 19,60,877.81/ alongwith interest @ 18% p.a from the date of accrual of interest till the date of filing of the claim petition and also cost of proceedings. 2 There are several cases against Edu Smart/Edu Comp which are pending before this Court. I have already given my opinion in the first such matter which was disposed off by this Court as 'Pragati Public School VS Edu Smart Services' dated 07.03.2019. On the similar grounds, I am passing the present judgment as well. Case of Claimant/Respondent
3. The case of respondent as per claim petition filed before Ld. Arbitrator is that M/s Educom Solutions Ltd. is a duly incorporated company and M/s Edu Smart Services Pvt Ltd its a wholly owned subsidiary. They are working in education sector since 1994 and are pioneers in Eeducation. They create smart class rooms which are technologically and digitally enabled. They supply hardware and software on sale as well as license basis.
Arb No.348/18 age 2 of 12
4. On 25.05.2011, Tripartite Agreement was entered into between the two claimant companies and petitioner/school. Under the agreement, hardwares were sold to the objector and were supposed to be installed at objector school/premises. Software and other services were also to be supplied in hard disk. Support services were also to be provided apart from other consumables like printing paper etc. The payment was to be made by objector as per agreement between the parties. Payment was to be made in installments. It is further the case of claimants that they performed their part of the contract by supplying hardware and software services. They rendered services to the satisfaction of objector. Despite this, the school/objector failed to make the payment. Consequently, a legal notice was issued for payment of the balance amount. When the dues were not cleared despite notice, the matter referred to sole arbitrator.
5. Consequently, arbitration was invoked by issuance of letter to the arbitrator seeking his consent and hence the arbitration proceedings commenced. Ld. Arbitrator issued notice to the objector but he did not appear and hence they were proceeded ex parte. Evidence was recorded which was followed by passing off the impugned award.
6. It is the case of respondent that the present Section 34 Arb No.348/18 age 3 of 12 application is barred by limitation and hence liable to be dismissed. Objector's case
7. Objector has admitted the tripartite agreement between the parties. It is argued by objector as follows (I) No proper notice was issued to the applicant u/Sec 21 of A&C Act. It is submitted that only one demand notice was issued but it cannot be termed as notice u/Sec 21 of A&C Act.
(ii) It is submitted that as per Clause 9.1 of the Tripartite Agreement, the arbitrator had to be a mutually acceptable sole Arbitrator but no consent was obtained while appointing the present sole arbitrator by the claimant.
(iii) It is submitted that no notice was received from Ld. Arbitrator and petitioner was proceeded exparte illegally.
(iv) The claimants were negligent as they did not supply the services properly.
(v) Further, it is argued that Arbitrator is not an independent arbitrator as he is appointed in several other matters as well.
8. Pursuant to the agreement between the parties dated 25.05.2011, respondent no.1 and 2 promised to provide Smart Class Rooms. Petitioner made payment of Rs. 3,21,000/ to the respondents as demanded by them with the promise to provide services which never provided. Resource person was never Arb No.348/18 age 4 of 12 appointed. The teachers training were never imparted and respondent abruptly stopped services. Petitioner received one notice from the office of arbitrator Sh. J N Yadav dated 18.03.2015 but later on Sole Arbitrator withdrew from the office and his mandate terminated. On 09.06.2016, respondents appointed the present Arbitrator again without consent of the petitioner and petitioner never received any notice for appointment of the present arbitrator. On 23.01.2017, present petitioner appeared before arbitrator and sought time. In April 2017, the present petitioner/objector could not appear as the counsel failed to appear thereafter on 02.05.2017 they have proceeded exparte and on 09.05.2017, an exparte award was passed against them. Reasons for Decision
9. I have heard both the sides and gone through the record.
10. As per record, arbitrator dispatched copy of the award to them on 30.12.2017 which was received by them on 03.01.2018 and present petition was filed on 05.03.2018, hence within limitation.
12. It is the objection raised on behalf of objector that even though notice u/Sec 21 of A&C Act is mandatory, no such notice was ever issued to the objector by the claimant.
Arb No.348/18 age 5 of 12 Section 21 of Arbitration & Conciliation Act is as follows
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.
13. In the present case, there is no such notice issued to the objector. There is one notice on record which was issued by claimant to the objector's school but the same is a demand notice and not a notice u/Sec 21 of A&C Act. It only states that certain dues are to be cleared by objector's school and in case they are not cleared on time, arbitration shall be invoked.
14. Further, it was observed in: Alupro Building Systems Pvt Ltd VS Ozone Overseas Pvt Ltd, MANU/DE/0495/2017, has held that "28. Lastly, for the purposes of Section 11 (6) of the Act, without the notice under Section 21 of the Act, a party seeking reference of disputes to arbitration will be unable to demonstrate that there was a failure by one party to adhere to the procedure and accede to the request for the appointment of an arbitrator. The trigger for the Court's jurisdiction under Section 11 of the Act is such failure by one party to respond.
29. Of course, as noticed earlier, parties may agree to waive the requirement of such notice under Section 21. However, in the absence of such express waiver, the provision must be given full effect to. The legislature should not be presumed to have inserted a provision that serves a limited purpose of only determining, for the purposes of limitation, when arbitration proceedings commenced. For a moment, even assuming that the provision serves only that purpose viz. fixing the date of commencement of arbitration proceedings for the purpose of Section 43 (1) of the Arb No.348/18 age 6 of 12 Act, how is such date of commencement to be fixed if the notice under Section 21 is not issued? The provision talks of the 'Respondent' receiving a notice containing a request for the dispute "to be referred to arbitration". Those words have been carefully chosen. They indicate an event that is yet to happen viz. the reference of the disputes to arbitration. By overlooking this important step, and straightaway filing claims before an arbitrator appointed by it, a party would be violating the requirement of Section 21, thus frustrating an important element of the parties consenting to the appointment of an arbitrator.
30. Considering that the running theme of the Act is the consent or agreement between the parties at every stage, Section 21 performs an important function of forging such consensus on several aspects viz. the scope of the disputes, the determination of which disputes remain unresolved; of which disputes are time barred; of identification of the claims and counterclaims and most importantly, on the choice of arbitrator. Thus, the inescapable conclusion on a proper interpretation of Section 21 of the Act is that in the absence of an agreement to the contrary, the notice under Section 21 of the Act by the claimant invoking the arbitration clause, preceding the reference of disputes to arbitration, is mandatory. In other words, without such notice, the arbitration proceedings that are commenced would be unsustainable in law.
34. .......... In view of section 21 of the Act providing that the arbitration proceedings shall be deemed to commence on the date on which "the request for that dispute to be referred to arbitration is received by the respondent" the said confusion is cleared. Therefore the purpose of section 21 of the Act is to determine the date of commencement of the arbitration proceedings, relevant mainly for deciding whether the claims of the claimant are barred by limitation or not."
15. Further, as per clause 9.1 of the Tripartite agreement, the arbitrator has to be an acceptable arbitrator.
Clause 9.1 of Tripartite Agreement is as follows "If any dispute or difference of any kind whatsoever arise, between the parties in connection with or arising out of this Arb No.348/18 age 7 of 12 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 threunder. The sole Arbitrator shall be appointed by Part A. the venue of 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."
16. Hence, it was mandatory to send notice to the objector with respect to the arbitrator to be appointed to seek his consent but no such notice was ever sent. Further there is nothing in arbitral record to show that any notice in accordance with Section 21 of A&C Act or in accordance with Clause 9.1 of Arbitrator Act was sent to the objector school by respondent. In the arbitral record, there is a letter written by respondent's counsel to the objector which is a legal notice and it does not contain any reference to the invoking of arbitration. Further there is a letter written by respondent company to the arbitrator thereby apprising him of the proposal to appoint him as arbitrator. There nothing on record to show that the copy was sent to objector. Hence, it cannot be said that the arbitrator which was appointed was the one which was acceptable to both the parties.
17. Further, it was observed in: Dharma Prathishthanam vs. Arb No.348/18 age 8 of 12 M/s Madhok Construction Pvt. Ltd., SP (Civil) 7835 of 2003, decided on : 02/11/2004, wherein Hon'ble Su preme Court has held that :
"7. An arbitrator or an Arbitral Tribunal under the Scheme of the 1940 Act is not statutory. It is a forum chosen by the consent of the parties as an alternate to resolution of disputes by the ordinary forum of law Courts. The essence of arbitration without assistance or intervention of the Court is settlement of the dispute by A Tribunal of the own choosing of the parties. Further, this was not a case where the arbitration clause authorised one of the parties to appoint an arbitrator without the consent of the other. Two things are, therefore, of essence in cases like the present one: firstly, the choice of the Tribunal or the arbitrator; and secondly, the reference of the dispute to the arbitrator. Both should be based on consent given either at the time of choosing the Arbitrator and making reference of else at the time of entering into the contract between the parties in anticipation of an occasion for settlement of disputes arising in future.
12. On a plain reading of the several provisions referred to hereinabove, we are clearly of the opinion that the procedure followed and the methodology adopted by the respondent is wholly unknown to law and the appointment of the sole arbitrator Shri Swami Dayal, the reference of disputes to such arbitrator and the exparte proceedings and ward given by the arbitrator are all void ab inito and hence nullity, liable to be ignored. In case of arbitration without the intervention of the Court, the parties must rigorously stick to the agreement entered into between the two. If the arbitration clause names and arbitrator as the one already agreed upon, the appointment of an arbitrator poses no difficulty. If the arbitration clause does not name an arbitrator but provides for the manner in which the arbitrator is to be chosen and appointed, then the parties are bound to act accordingly. If the parties do not agree then arises the complication which has to be resolved by reference to the provisions of the Act. One party cannot usurp the jurisdiction of the Court and proceed to act unilaterally. A unilateral appointment and a unilateral reference, both will be illegal.
17. In Union of India Vs. Prafulla Kumar Sanyal (1979) 3 SCC 631, this Court observed that an order of reference can be either Arb No.348/18 age 9 of 12 to an arbitrator appointed by the parties whether in the agreement or otherwise or where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court. If no such arbitrator had been appointed and where the parties cannot agree upon an arbitrator, the Court may proceed to appoint an arbitrator itself. Clearly one party cannot force his choice of arbitrator upon the other party to which the latter does not consent. The only solution in such a case is to seek an appointment from the Court.
35. Thirdly, if the petitioner is not named and the authority who would appoint the arbitrator is also not specified, the appointment and reference shall be to a sole arbitrator unless a different intention is expressly spelt out. The appointment and reference both shall be by the consent of the parties. Where the parties do not agree, the Court steps in an assumes jurisdiction to make an appointment also to made a reference, subject to the jurisdiction of the Court being invoked in that regard. We hasten to add that mere inaction by a party called upon by the other one to act does not lead to an inference as to implied consent or acquiescence being drawn. The appellant not responding to respondent's proposal for joining in the appointment of a sole arbitrator named by him could not be construed as consent and the only option open to the respondent was to have invoked the jurisdiction of Court for appointment of an arbitrator and an order of reference of disputes to him. It is the Court which only could have compelled the appellant to joint in the proceedings."
Further, Section 34(2) (a) (iii) of Arbitration & Conciliation Act is as follows "34. Application for setting aside arbitral award. (2) An arbitral award may be set aside by the Court only if
(a) the party making the application furnishes proof that
(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;"
Arb No.348/18 age 10 of 12
18. Hence, the decision of respondent to unilaterally appoint Ms. Rekha Gupta as a Sole Arbitrator without notifying the objector and also the decision to invoke the arbitration clause without notifying the objector has rendered the entire arbitral proceeding vitiated. It is in contravention with the provision of Arbitration Act, provisions of the Tripartite Agreement and against basic notions of justice. As the very foundation of the arbitral proceedings is found to be untenable in law, the proceedings in the award deserves to be set aside. Hence, no useful parties would be served by dealing with award on merits when the entire foundation on which the arbitration proceedings commenced has been shattered.
19. Further as per Section 12 of A&C Act arbitrator is required to disclose in writing, any circumstances likely to raise justifiable doubts as to his independents or impartiality. However, there is nothing on record to show that arbitrator disclosed to the opposite party that he/she has been appointed in other matters and in how many matters. Needless to say, the present arbitrator is appointed in several other matters as well by the respondents, some of which are pending before this Court also as is pointed out by Ld counsel for objector. This itself is also a ground which gives rise to justifiable doubts as to independence and impartiality of the Arb No.348/18 age 11 of 12 arbitrator appointed in this case.
20. The present award has failed to comply with the above discussed provisions of Arbitration and Conciliation Act as well as terms and conditions of the agreement between the parties. Hence, it is against fundamental policy of Indian Law.
21. The Objection Petition is accordingly allowed. The proceedings initiated by Ld. Arbitrator and the impugned award dated 25.05.2011 passed by Ld. Sole Arbitrator is hereby set aside. Parties are left to bear their own cost. Parties are at liberty to initiate Arbitration Proceedings again as per law.
Digitally signed File be consigned to record room. by TWINKLE
WADHWA
TWINKLE Date:
Announced in an open Court WADHWA 2019.09.21
15:20:30
On 21st day of September 2019. +0530
(Twinkle Wadhwa)
ADJ03/PHC/NEW DELHI
21.09.2019.
Arb No.348/18 age 12 of 12