Telangana High Court
Babu V.S. Kumar Ramayanam vs Konu Developers Pvt Ltd on 28 October, 2022
THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
Arbitration Application No.72 of 2021
ORDER:
Heard Mr. Srinivas Velagapudi, learned counsel for the applicants. None has appeared for the respondents despite being served.
2. This application has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (briefly 'the 1996 Act' hereinafter) for appointment of sole arbitrator to arbitrate on the dispute between the parties.
3. On 05.08.2021, this Court directed issuance of notice to the respondents. Subsequently, in the proceedings dated 28.07.2022, it was recorded that respondent No.1 was served and was represented by Mr. V.Ranga Babu, learned counsel.
4. Respondent No.1 has also filed counter-affidavit.
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5. Regarding service of notice upon respondent No.2, applicants had filed memo dated 27.12.2021 as per which respondent No.2 was served on 14.12.2021.
6. Regarding service of notice upon respondents No.3 and 4, this Court granted liberty to the applicants to serve the said respondents by way of newspaper publication and thereafter, to file memo detailing the steps taken regarding service of notice. Applicants filed memo dated 26.08.2022 stating that notice was published in Telangana Today (English) daily newspaper of Hyderabad on 15.08.2022 and also in Eenadu (Telugu) daily newspaper of Hyderabad on 18.08.2022.
7. Perused the memo dated 26.08.2022 along with the material papers.
8. From the above, it is evident that respondents No.3 and 4 have been served.
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9. Applicants as the first party had entered into an agreement dated 12.03.2015 with respondent No.1- Konu Developers Private Limited as the second party (builders) for construction of building on the subject land. It was mentioned therein that the first party are the owners of the subject land; they were desirous of getting a building constructed thereon.
10. Subject land is a plot of land admeasuring 1003.20 square meters bearing plot Nos.141, 142, 143, 164, 165 & 166 situated in Survey No.45(P) of Miyapur Village, Serilingampally Mandal, Cyber Valley Phase II, Kondapur, Hyderabad.
11. Clause 20 of the aforesaid agreement provided for dispute resolution. Clause 20 reads as follows:
All disputes or differences relating to the specifications, designs, drawings and as to quality of workmanship or material used in the work or as to any other question arising out of or relating to the contract, design, drawings, specifications, orders or otherwise in connection with the agreement or the carrying out of the works, whether during the ::4::
progress of the work or after the completion or abandonment thereof shall be referred to the arbitration under the Arbitration and Conciliation Act, 1996.
12. It is stated that dispute arose between the parties as regards construction of building on the subject land. It is stated that an amount of Rs.7,26,22,172.00 was paid by the applicants to the respondents towards construction of the building. However, respondents failed to carry out the full construction and abruptly stopped construction activity in March, 2015.
13. Faced with this situation, applicants e-mailed to the respondents on 26.12.2020 stating that applicants would invoke the arbitration clause. Respondents in their reply e-mail dated 05.01.2021 stated that one Mr. K.R.Preetam, MBA was appointed as the sole arbitrator. By e-mail dated 06.01.2021, applicants proposed the name of Mr. V.S.Rao, as the sole arbitrator to resolve the dispute between the parties and sought for the consent of the respondents. It was mentioned therein that in the ::5::
event of non-cooperation by the respondents, applicants would be constrained to approach the High Court for appointment of arbitrator under Section 11(6) of the 1996 Act.
14. In their e-mail dated 08.01.2021, respondents objected to appointment of Mr. V.S.Rao as the arbitrator. However, respondents mentioned that if the applicants were not agreeable to appointment of Mr. K.R.Preetam as the arbitrator, they would be at liberty to approach the High Court for appointment of arbitrator.
15. Surprisingly on 11.02.2021, a letter was issued by Mr. K.R.Preetam to the applicants informing them that he was appointed as arbitrator by respondent No.1 and fixed 28.02.2021 as the date of hearing. Applicants responded to the same and by e-mail dated 24.03.2021, disputed unilateral appointment of arbitrator by respondent No.1. It was pointed out that the arbitrator was a close associate of respondent No.1. Therefore, they requested Mr. K.R.Preetam to desist from issuing notices to ::6::
the applicants. It was in such circumstances that the present application came to be filed.
16. Respondent No.1 in its counter-affidavit has stated amongst others that an arbitrator was appointed in the month of January, 2021 and award was passed on 18.08.2021. A copy of the said award dated 18.08.2021 has been annexed to the counter- affidavit. In that arbitration proceedings, respondent No.1 was the petitioner and the applicants were the respondents. Respondent No.1 had raised certain claims against the applicants which were allowed by the said arbitrator with 12% interest from the date of filing of the petition till realisation. The arbitration proceedings and award were ex parte.
17. Before proceeding further, it would be apposite to advert to Clause 20 of the agreement dated 12.03.2015 binding the parties and which we have already extracted above.
18. A perusal and careful analysis of the aforesaid provison would go to show that all disputes or differences arising out of or ::7::
relating to the contract whether during the progress of the work or after completion of the work or on abandonment of the work shall be referred to arbitration under the 1996 Act. Though the clause is silent as to the procedure to be followed by the parties to the agreement while referring to arbitration for dispute resolution, nonetheless it is a settled proposition that appointment of arbitrator has to be on the basis of a consensus between the parties. If the parties fail to reach any consensus, then it is open to either of the parties to approach the High Court under Section 11(6) of the 1996 Act and abide by the decision of the High Court. The 1996 Act does not contemplate appointment of arbitrator unilaterally by either of the parties to an arbitration agreement.
19. In Dharma Prathishthanam v. Madhok Construction (P) Limited1, Supreme Court held in the facts and circumstances of that case that unilateral appointment of the sole arbitrator, unilateral reference of dispute to such arbitrator, ex parte proceedings and the award given by such arbitrator are all void ab 1 (2005) 9 Supreme Court Cases 686 ::8::
initio and hence, a nullity liable to be ignored. In the case of arbitration without the intervention of the Court, the parties must rigorously stick to the agreement entered into between the two; one party cannot assail the jurisdiction of the court and proceed to act unilaterally. An unilateral appointment and a unilateral reference, both would be illegal.
20. This aspect also came up before the Delhi High Court in Sital Dass Jewellers v. Asian Hotels (North) Ltd.,2 In the said case, a learned Single Judge of the Delhi High Court rejected the contention of the petitioners to appoint arbitrator of their choice holding that no party can be permitted to unilaterally appoint an arbitrator as the same would defeat the purpose of unbiased adjudication of dispute between the parties.
21. Referring to the pertinent observations of the Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd3., it has been reiterated in Sital Dass Jewellers v. Asian Hotels 2 2021 SCC Online Del 3914 3 2019 SCC Online SC 1517 ::9::
(North) Ltd., (2 supra) that in cases where 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.
22. That being the position and upon careful analysis of the materials on record, this Court has no hesitation to hold that unilateral appointment of Mr. K.R.Preetam as sole arbitraror by respondent No.1, ex parte arbitration proceedings and passing of ex parte award by him on 18.08.2021 are all void ab initio and therefore, a nullity.
23. On due consideration, this Court appoints Mr. Justice A.Raja Sheker Reddy, a former Judge of this Court, as the sole arbitrator to arbitrate on the dispute between the parties.
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24. Parties are directed to report to the learned arbitrator on 28.11.2022 at 11.00 a.m., whereafter learned arbitrator shall proceed with the arbitration proceedings.
25. Registry to furnish a copy of this order to the learned arbitrator.
26. This disposes of the Arbitration Application.
__________________ UJJAL BHUYAN, CJ Date: 28.10.2022 LUR