Delhi District Court
Milton Public School vs M/S Edusmart Services Pvt. Limited on 31 July, 2021
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (COMM.) No. 01/2019
Milton Public School
Farah Colony, Sindanoor Road,
Manvi, Karnataka 584123 ...Petitioner
vs
1. M/s Edusmart Services Pvt. Limited
Office: L-74, Mahipalpur Extension,
New Delhi-110037
2. M/s Educomp Solutions Ltd
Office:1211, Padma Towers,
1,5, Rajendra Place,
New Delhi-110008 ...Respondents
Date of Institution : 22/12/2018
Arguments concluded on : 19/07/2021
Decided on : 31/07/2021
Appearances : Ms. Charu Ambwani, Ld. Counsel for petitioner.
Sh. Chaitanya Mathur, Ld. Counsel for respondent no. 2.
JUDGMENT
1. Petitioner had filed the present petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act), seeking setting aside of the ex-parte arbitral award dated 29/04/2017, passed by Ms. Rekha Gupta, Ld. Sole Arbitrator in Arb.case no:- RG/ARB_03.10.16/180. Ld. Sole Arbitrator awarded sum of Rs. 23,16,649.02 with interest @ 18% per annum from 18/11/2016 till realization in favour of claimants/ present respondents payable by present petitioner with costs detailed therein.
OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 1 of 282. I have heard Ms. Charu Ambwani, Ld. Counsel for petitioner; Sh. Chaitanya Mathur, Ld. Counsel for respondent no. 2 and perused the record of the case, the arbitral proceedings record, relied upon precedents, filed brief written arguments on behalf of petitioner as well as both respondents and given my thoughtful consideration to the rival contentions put forth.
3. Adumbrated in brief, the facts of the case of petitioner as well as arguments setup by the petitioner through Ld. Counsel are as follows:-
Petitioner school entered into Tripartite Agreement dated 08/11/2010 with the respondents for services related to Smart Class Program to be provided by respondent nos. 1 and 2 to petitioner school. Respondents were obligated to provide hardware, software and personnel for installation of the program at the school of petitioner. Petitioner paid a total sum of Rs.90,000/- till January, 2012 in terms of Tripartite Agreement. Thereafter respondents suddenly stopped the services of machinery and did not provide any technical input. The software was also not updated by the respondents in terms of the agreement. Time and again petitioner approached the respondents and expressed his dis-satisfaction towards the implementation of the program, but in utter disregard of the Tripartite Agreement, respondents failed to take proper measures to address the grievance for which the payments were made by the petitioner. Respondent never intended to perform their part of agreement and fraudulently deceived the school to invest in their company. On 14/04/2016, respondents allegedly issued OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 2 of 28 legal notice demanding sum of Rs.23,16,649.02 along with interest @ 18% per annum. Allegedly respondents issued letter on 04/06/2016 invoking the arbitration clause and unilaterally appointed a Sole Arbitrator. Petitioner did not receive notices dated 14/04/2016 and 04/06/2016. As per impugned ex-parte arbitral award, Ld. Arbitral Tribunal had issued notices on 03/10/2016, 01/12/2016 and 05/01/2017 and proceeded ex-parte against petitioner on 31/01/2017 after which ex-parte award was passed by Arbitral Tribunal on 29/04/2017. Petitioner did not receive the aforesaid notices issued by Arbitral Tribunal and therefore could not participate in the arbitral proceedings. Arbitral Tribunal did not record the findings with respect to the notices being sent to petitioner and if the same were received by the petitioner.
4. Petitioner has impugned the ex-parte arbitral award dated 29/04/2017 mainly on the following grounds:-
A. It is ex-facie and strikingly contrary to the express terms of the agreement between the parties and Ld. Arbitrator has demonstrably travelled beyond the terms of the tripartite agreement without taking into consideration the relevant documents.
B. Petitioner was not given proper notice of appointment of the Arbitrator. Petitioner was not given proper notice of the arbitral proceedings, so was unable to present its case accordingly. The ex parte award is contrary to the provisions of Section 34(2)(a)(iii) of the Act.
C. Despite exchange of e-mails between the parties OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 3 of 28 for the implementation of the smart classes program, petitioner was not communicated regarding the arbitral proceedings even by the claimants/respondents. D Petitioner was proceeded ex parte by the Arbitral Tribunal on 31/01/2017 without service of appropriate notice.
E. Ld. Sole Arbitrator was unilaterally appointed by the respondents without the consent of petitioner in violation of Clause 9.1 of the agreement inter se parties. The composition of Tribunal was not in accordance with the agreement between the parties and award is liable to be set aside under Section 34(2)(a)
(v) of the Act.
F. It amounted to misconduct and patent illegality on the part of Ld. Arbitrator to proceed with the arbitral proceedings, in view of Clause 9.1 of the Tripartite Agreement which finds mention that respondent no. 1 shall appoint an acceptable Sole Arbitrator under the Act to adjudicate the disputes arising out between the parties.
G. The arbitral proceedings were conducted with malafide intention and were complete sham. An unreasoned award was passed by Ld. Sole Arbitrator based on ex-parte evidence adduced on behalf of respondents. Ld. Sole Arbitrator had awarded the claim raised by the respondents only on the premise that petitioner failed to perform their part of the contract and failed to make the payments as per payment schedule inspite of the fact that respondents stopped OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 4 of 28 providing the technical support and software in the year 2011, whereas petitioner made its payment till January, 2012.
H. The curriculum provided by respondent no. 2 was sub-standard and seemed to be a borrowed one. It was realized by petitioner that respondent no. 2 had not provided with any inputs to run the machinery, whereas petitioner got installed the machinery from respondents with a fond hope that it can provide quality education to its students and paid the consideration amount to the tune of Rs.90,000/-. I. Machinery supplied by the respondents never functioned. Letters were exchanged between the parties and despite admitting that faulty programme had been supplied by the respondents, respondents ignored the complaints of the petitioner and thus respondents violated the terms and conditions of the agreement, so cannot claim the benefit of their own wrongs. Even respondent no. 2 did not provide technical inputs, training staff and support services for proper execution of the smart class program, in terms of the agreement and provided machinery was never functional.
J. The breach of the contract on the part of respondents effected the reputation of the petitioner institution, causing irreparable loss in terms of money and petitioner suffered huge losses on account of failure of respondents in complying the terms and conditions of the agreement.
K. Petitioner was never provided with the signed/ OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 5 of 28 certified copy of the impugned ex-parte arbitral award till date of filing of petition. Petitioner got photocopy of ex-parte arbitral award sometime in October, 2018 and filed the present petition in December, 2018 within period of limitation.
Petitioner through Counsel prayed for setting aside of impugned ex-parte arbitral award, relying upon the following precedents:
1. P. Mohanraj & Ors. vs Shah Brothers Ispat Pvt. Ltd., 2021 SCC OnLine SC 152;
2. Dakshin Haryana Bijli Vitran Nigam Ltd. vs Navigant Technologies Pvt. Ltd, 2021 SCC OnLine SC 157;
3. Union of India vs Tecco Trichy Engineers & Contractors, (2005) 4 SCC 239;
4. Banarsi Krishna Committee & Ors. vs Karmyogi Shelters Pvt Ltd., (2012) 9 SCC 496;
5. Perkins Eastman Architects DPC & Anr. Vs HSCC (India) Ltd., 2019 SCC OnLine SC 1517 and
6. Power Grid Corporation of India Ltd. vs Jyoti Structures Ltd., 2017 SCC Online Del 12189.
5. After service and despite opportunities respondents did not file any reply to the petition. However, on behalf of the respondents written arguments were filed on 12/02/2021 by the then Authorized Counsel for the respondents. Ld. Counsel for respondent no. 2 also addressed oral arguments in terms of filed written submissions on behalf of respondents. It was argued that grounds taken by petitioner were frivolous, baseless and without any proof. It was argued that vague averments against the award were made by petitioner on baseless grounds which do not fall within the scope of Section 34(2)(a) of the Act, Section 34 (2)(b) of the Act and/or Section 34 (2A) of the Act. It was argued that decision of Ld. Arbitrator is generally considered binding between the parties and therefore, the power of the Court to set OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 6 of 28 aside the award would be exercised only in the cases where Court finds that the arbitral award is on the face of it erroneous or patently illegal or in contravention of the provisions of the Act, as was held in the case of Swan Gold Mining Ltd. vs Hindustan Copper Ltd., Civil Appeal No. 9048 of 2014, decided on 22/09/2014 by Supreme Court. It was argued that it is well settled proposition that the Court shall not ordinarily substitute its interpretation for that of the Arbitrator. It was argued that general principles as to arbitration proceedings are that the Arbitrator is a Judge of the choice of the parties and his/her decision, unless there is an error apparent on the face of the award cannot be interfered. The Court while deciding the objection petition under Section 34 of the Act is not sitting in appeal over the conclusion of the Arbitrator. The Court cannot reappraise the evidence and it is not open to the Court to set aside the finding of the fact arrived at by the arbitrator. Where the arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the Court in exercise of the power vested in it. It was argued that petition is time barred. It was also argued that petitioner was well aware of the arbitral proceedings as it is own case of petitioner that in January, 2018 petitioner received notice from the Executing Court of Karnataka about the execution petition filed by the respondents with respect to the impugned arbitral award and on 14/02/2018 petitioner appeared there. Ld. Counsel for respondents relied upon the decision of Madras High Court in the case Maruthi Apartments vs K.V. Narsimhan in O.P Diary No. 116747 of 2018 submitting that the present petition is barred by limitation. It was argued that attitude of OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 7 of 28 petitioner amounts to ignorance of law, whereas it is settled law by Supreme Court that ignorance of fact may be excused, but ignorance of law cannot be excused; so petition is liable to be dismissed. Ld. Counsel for respondents relied upon the decision of Supreme Court in the case of Union of India & Ors vs Major General Madan Lal Yadav (Retd.), (1996) 4 SCC 127, wherein maxim of law "no man shall take advantage of his own wrong" was reiterated. It was argued that it is settled principle of law that a man cannot be permitted to take undue and unfair advantage of his own wrong to gain favourable interpretation of law and it is sound principle that he who prevents a thing from being done shall not avail himself of the non performance he has occasioned. A wrong doer ought not to be permitted to make a profit out of his own wrong. It was argued that award reflected that petitioner was given multiple opportunities to appear before Arbitral Tribunal; yet petitioner failed to appear before Arbitral Tribunal and by order dated 31/01/2017 petitioner was proceeded ex-parte. It was argued that award was detailed, well reasoned and there is no question of partiality or injustice in passing the award. It was argued that signed copy of the award was infact sent to petitioner and was duly received by the petitioner. It was prayed that petition be dismissed as grounds raised by petitioner are baseless, wrong and not covered within the ambit of Section 34 of the Act.
6. An arbitral award can be set aside on the grounds set out in Section 34 (2) (a), Section 34 (2) (b) and Section 34 (2A) of the Act in view of Section 5 of the Act and if an application for setting aside such award is made by party not later than 3 OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 8 of 28 months from the date from which the party making such application had received the signed copy of the arbitral award or if a request had been made under Section 33 of the Act, from the date on which that request had been disposed of by the Arbitral Tribunal. If the Court is satisfied that the applicant was prevented by sufficient cause from the making the application within the said period of three months it may entertain the application within further period of 30 days, but not thereafter.
7. Section 34 (1) (2), (2A) and (3) of The Arbitration and Conciliation Act, 1996 read as under:-
"34. Application for setting aside arbitral award- (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
(2) An arbitral award may be set aside by the court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 9 of 28 decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-- (i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice.
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, 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 OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 10 of 28 three months it may entertain the application within a further period of thirty days, but not thereafter."
8. Present petition was filed on 22/12/2018 by petitioner impugning the arbitral award dated 29/04/2017. Petitioner had received notice from Executing Court of Ld. Principal District Judge, Raichur, Karnataka for filed execution petition no 125/2018 by claimants/present respondents only in the month of January, 2018 to appear there on 14/02/2018 when petitioner alleged to have gained the knowledge of passing of the impugned ex-parte arbitral award against it. It is the case of petitioner that for the first time it appeared before Executing Court in Raichur on 02/07/2018 and requested for a certified copy of the impugned ex-parte arbitral award. It is also the case of the petitioner that on 01/10/2018 petitioner approached the Arbitrator and requested Ld. Arbitrator to provide them the certified copy of arbitral award. It is also the case of the petitioner that till date of filing of the present petition on 22/12/2018, petitioner did not receive any signed/certified copy of impugned ex parte arbitral award from Ld. Sole Arbitrator. In the arbitral proceedings record, the concluding para of the impugned ex-parte arbitral award finds mention that signed copy of this award may be sent to the parties to the agreement. Below the signatures of Ld. Sole Arbitrator is a stapled receipt of speed post article purportedly dispatched on 06/05/2017 addressed to "MILTON PUB SCH, MANVI, PIN:
584123". The said speed post receipt does not find mention of the complete address "Milton Public School, Farah Colony, Sindanoor Road, Manvi, Karnataka" of the petitioner school as is mentioned in the claim petition filed by claimants/present respondents before Ld. Sole Arbitrator and in the Memo of OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 11 of 28 Parties with this petition. Also in the arbitral proceedings record there is no document like tracking report of speed post article sent on 06/05/2017 depicting the delivery of said sent speed post article vide receipt dated 06/05/2017 upon the addressee petitioner school. There are certain tracking reports placed on the arbitral proceedings record with respect to some other speed post articles sent. In the arbitral proceedings record there is also no material/order-sheet of Ld. Sole Arbitrator of dispatch of signed copy of impugned ex-parte arbitral award on 06/05/2017 vide aforesaid speed post receipt dated 06/05/2017 after passing of the impugned ex-parte arbitral award dated 29/04/2017. In absence of complete address of petitioner school on the speed post receipt dated 06/05/2017, aforesaid and specific averment in the petition supported with affidavit of petitioner for non receipt of signed copy of impugned arbitral award and there being no other proof placed on arbitral proceedings record or by respondents in the present file; this Court cannot presume delivery of signed copy of impugned ex-parte arbitral award upon the petitioner school.
9. Supreme Court in case of State of Maharashtra & Ors vs ARK Builders Private Ltd., (2011) 4 SCC 616, has held that the period of limitation prescribed under section 34(3) of The Act would start running only from the date when a signed copy of award is delivered to/received by a party making the application for setting aside the award under section 34(1) of The Act.
Reliance was placed on the case of Union of India vs Tecco Trichy Engineers & Contractors, (2005) 4 SCC 239, wherein also was so held by Supreme Court.
OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 12 of 2810. Supreme Court in case of Benarsi Krishna Committee & Ors. Vs Karmyogi Shelters Pvt. Ltd (supra) has held that limitation of three months under section 34(3) of The Act is to be reckoned from date on which party itself received signed copy of the award and not its advocate or agent. Bombay High Court in case of E-square Leisure Pvt. Ltd. vs. K.K. Jani Consultants and Engineering Company, (2013) 2 Bom.C.R. 689, has held that the limitation for making an application under section 34(3) of The Act for setting aside an arbitral award would commence only after a signed copy of the award is received by a party from the arbitral tribunal under section 31(5) of The Act.
11. Since there is no material placed on arbitral proceedings record and even no material has been placed on record by the respondents whereby it can be presumed that signed copy of award was ever served upon the petitioner school by Ld. Sole Arbitrator; in terms of law laid in the case of (i) Union of India vs Tecco Trichy Engineers & Contractors (supra); (ii) State of Maharashtra & Ors vs ARK Builders Private Ltd. (supra) );
(iii) Benarsi Krishna Committee & Ors. Vs Karmyogi Shelters Pvt. Ltd (supra) and (iv) E-square Leisure Pvt. Ltd. vs. K.K. Jani Consultants and Engineering Company (supra); it cannot be said that present petition is barred by limitation since the limitation period for filing the petition under Section 34 of The Act for setting aside an arbitral award would commence only after signed copy of the award is received by the party from Arbitral Tribunal.
OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 13 of 2812. Normally, the general principles are that Arbitrator is a Judge of the choice of the parties and his decision, unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even by the Court as a Court of law could come to a different conclusion on the same facts. The Court cannot reappraise the evidence and it is not open to the Court to sit in appeal over the conclusion of the Arbitrator. It is not open to the Court to set aside a finding of fact arrived at by the Arbitrator and only grounds on which the award can be set aside are those mentioned in the Arbitration Act. Where the Arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the Court in exercise of the power vested in it. Where the Arbitrator is a qualified technical person and expert, who is competent to make assessment by taking into consideration the technical aspects of the matter, the Court would generally not interfere with the award passed by the Arbitrator.
13. Supreme Court in case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor capricious, no interference is called for on facts. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 14 of 2814. Supreme Court in case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 has held that under Section 34 (2A) of The Act, a decision which is perverse while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. A finding based on the documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would also have to be characterized as perverse. It is held that a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
15. Section 11 of The Act is with respect to the appointment of the arbitrators by the Supreme Court or as the case may be, by the High Court only.
16. Under Section 12 of The Act, when a person is approached in connection with his possible appointment as an arbitrator, he is bound to disclose in writing any circumstances, such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and which are likely to affect his ability to devote sufficient time to OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 15 of 28 the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Various grounds are set out in the Fifth Schedule as a guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. The disclosure shall be made by such person in the form specified in the Sixth Schedule. An arbitrator may be challenged by the parties only if any circumstances referred to in Section 12 (3) of The Act subject to Section 13 (4) of The Act exist which provide for an agreement between the parties for such procedure for challenge. If such challenge is unsuccessful, the party may make an application for setting aside an arbitral award in accordance with Section 34 of The Act.
17. Section 14 of The Act provides that the mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator if he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay and he withdraws from his office or the parties agree to the termination of his mandate.
18. Section 15 of The Act provides that the mandate of arbitrator is also terminated if he withdraws from office for any reason or by or pursuant to agreement of the parties. In such an event, the substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. If such an arbitrator is replaced, any hearing previously held may be repeated at the discretion of the arbitral tribunal unless otherwise agreed by the parties. The earlier order OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 16 of 28 or ruling of the arbitral tribunal made prior to the replacement of an arbitrator shall not be invalid unless otherwise agreed by the parties.
19. Under Section 16 of The Act, the arbitral tribunal is empowered to rule on its own jurisdiction including ruling on any objection with respect to the existence or validity of arbitration agreement. Such plea shall be raised not later than the submission of the statement of defence. If such plea is rejected by the arbitral tribunal, it has to proceed with the arbitral proceedings and declare an award. If plea of jurisdiction is accepted by the arbitral tribunal, the respondent may file an appeal under section 37 of The Act. If plea of jurisdiction is not accepted, the respondent may challenge such ruling along with award under section 34 of The Act.
20. Supreme Court in case of TRF Ltd. vs Energo Engg. Projects Ltd., (2017) 8 SCC 377 has held that by virtue of section 12(5) of The Act, if any person, who falls under any of the category specified in the Seventh Schedule shall be ineligible to be appointed as an Arbitrator. It is held that the amended law under Section 11(6-A) of The Act requires the Court to confine examination of the existence of an arbitration agreement notwithstanding the judgment of the Supreme Court or the High Court while considering an application under section 11(6) of The Act. The designated arbitrator whose ineligibility to act as an arbitrator by virtue of amendment to Section 12 of The Act by the Arbitration and Conciliation (Amendment) Act, 2015, does not have power even to nominate any other person as arbitrator. The OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 17 of 28 Supreme Court and High Court in certain circumstances have exercised jurisdiction to nullify the appointments made by the authority in such situation.
21. Supreme Court in case of Bharat Broadband Network Ltd vs United Telecoms Ltd, (2019) 5 SCC 755 after construing Section 12(5) of The Act read with Fifth, Sixth and Seventh Schedule held that the Managing Director of the party, who was a named arbitrator, could not act as arbitrator nor could be allowed to appoint another arbitrator. The disclosure of a prospective arbitrator has to be made in the form specified in the Sixth Schedule and the ground stated in the Fifth Schedule are to serve as a guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Any prior agreement to the contrary is wiped out by the non-obstante clause in Section 12(5) of The Act the moment any person whose relationship with the parties or the counsel or the subject matter of the dispute falls under the Seventh Schedule. The sub-section then declares that such person shall be ineligible to be appointed as arbitrator. Such ineligibility can be removed by an express agreement in writing. It was held that learned arbitrator had become de jure ineligible to perform his function as an arbitrator.
22. Supreme Court in the case of Perkins Eastman Architects DPC vs HSCC (India) Ltd., 2019 SCC Online SC 1517 has held that in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. The OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 18 of 28 person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015. Supreme Court has set aside the appointment of an arbitrator appointed by one of the parties having exclusive right to appoint and appointed an independent arbitrator in the application filed under Section 11(6) of The Act.
23. In the case of Proddatur Cable TV Digi Services vs. Siti Cable Network Ltd., 2020 SCC Online Del 350, it was inter alia held by Delhi High Court that following ratio of the judgment in the case of Perkins (supra), it is clear that a unilateral appointment by an authority which is interested in the outcome or decision of the dispute is impermissible in law. When the Arbitration Clause empowers the Company to appoint Sole Arbitrator, it can hardly be disputed that the Company acting through its Board of Directors will have an interest in the outcome of the dispute. The appellant had filed the petition under Section 14 and 15 of The Act seeking declaration that the mandate of the arbitrator appointed by the respondent be terminated and an arbitrator be appointed by High Court in the provisions of The Act. Following ratio of the judgments in Perkins (supra) and Bharat Broadband Network Limited (supra), the mandate of the Arbitrator was found terminated de jure and since the present arbitrator had become unable to perform her functions as an arbitrator, her mandate was terminated and another independent Sole Arbitrator was appointed to substitute the previous arbitrator.
OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 19 of 2824. In the case of M/s Omcon Infrastructure Pvt. Ltd. Vs India Bulls Investment Advisors Ltd, OMP (T) (Comm.) 35/2020 and IA 6153/2020 decided on 01/09/2020 by Hon'ble Ms. Justice Rekha Palli of Delhi High Court, wherein petition was filed under Section 14 and 15 of The Act, seeking termination of the mandate of Ld. Arbitrator unilaterally appointed by the respondent and also quashing of order passed by Ld. Arbitrator, deciding the application of petitioner under Section 12 of The Act, the ratio of the decision in case of Perkins (supra) was applied and held that once the Managing Director of the respondent Company was ineligible to appoint the arbitrator, the same would also bar the Company itself from unilaterally appointing the sole arbitrator and reference was also made to the decision of Proddatur Cable TV Digi Services (supra). Therein also the mandate of the Ld. Arbitrator was terminated and new independent Sole Arbitrator was appointed.
25. Following is the Clause 9.1 of the Agreement in question between the parties:-
"9.1 ARBITRATION If any dispute or difference of any kind whatsoever arise between the parties in connection with or arising out of this Agreement or any part thereof, such dispute or difference shall be referred to an acceptable sole Arbitrator under the provisions of the Indian Arbitration and Conciliation Act, 1996, or any enactment or modification there under. The sole Arbitrator shall be appointed by Party A. The venue for arbitration shall be at New Delhi and the language shall be English. The courts in New Delhi shall have jurisdiction to entertain all disputes between the parties."
26. Bombay High Court in the case of Bhanumati J. Bhuta vs Ivory Properties & Hotels Pvt. Ltd., 2020 SCC Online Bombay OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 20 of 28 157 has held that the arbitral proceedings commence in respect of dispute when notice invoking of arbitration agreement is received by other side and not when such notice is only served upon the Arbitral Tribunal. The onus is on the applicant who had issued such notice to prove the delivery of such notice upon the other side.
27. In the case of International Nut Alliance LLC vs Beena Cashew Company, 2014 SCC Online Mad 425, it was inter alia held that before composition of arbitrators, a notice to the other party is very much essential.
28. Section 21 of The Act provides that unless and otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which the request for that dispute to be referred to the arbitration is received by the respondent. Limitation in respect of which a request is made by one party to other party to refer such dispute to the arbitration stops when such notice is received by other party.
29. At page no. 23 of the arbitral proceedings record is a legal notice dated 14/04/2016 addressed by Ms. Jyotsna Sharma, Advocate on behalf of respondents to petitioner school demanding payment of entire agreed amount payable on breach amounting to Rs.23,16,649.02 with interest @ 18% per annum within 15 days from the date/receipt of said notice, failing which respondents would presume that a dispute has arisen and respondents shall invoke the arbitration clause under the Tripartite Agreement. Accordingly, aforesaid legal notice dated OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 21 of 28 14/04/2016 was legal demand notice allegedly sent by the respondents through Counsel to petitioner school demanding allegedly notice amount with interest towards services and infrastructure availed by petitioner school under the subject agreement. Said legal notice dated 14/04/2016 cannot be said by any figment of imagination to be a notice under Section 21 of the Act mandatorily requiring request for that dispute to be referred to the arbitration as it contained the notice period of 15 days for the petitioner school to make the payment from the date/receipt of said notice.
30. In the arbitral proceedings record there is also a letter dated 04/06/2016 addressed by Sh. Kshitij Aggarwal, Executive-Legal of respondent no. 2 to Ld. Sole Arbitrator namely Ms. Rekha Gupta (Advocate) requesting her to accord her consent for her appointment as Sole Arbitrator for adjudication of the disputes between the parties of Tripartite Agreement in question after invoking the arbitration clause of said agreement. In the middle portion of said letter dated 04/06/2016 there is a printed sentence " With reference to the above proposal letter for appointment as the "Sole Arbitrator", now as token of having accepted the above, return the duly signed copy of this letter", below which are the signatures of Ld. Sole Arbitrator. True that at the bottom left portion is the printed text of sending of copy to the petitioner school and there is a speed post receipt stapled which bears date 15/06/2016 depicting purported sending of speed post article on 15/06/2016 by respondent no. 2 to MILTON PUB. SCHOOL MANVI. Neither speed post receipt find mentions of the complete address of petitioner school as is mentioned at the OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 22 of 28 foot of letter dated 04/06/2016 nor along with said receipt any copy of tracking report of said dispatched speed post article is placed on record of arbitral proceedings depicting delivery of said speed post article upon petitioner school. Be that as it may, fact also remains that in terms of afore said Clause 9.1 of the Agreement in question between the parties, in case of arising of dispute(s), it was/were to be referred to an acceptable Sole Arbitrator. The respondents have not filed before Ld. Sole Arbitrator or before this Court any document/material depicting of having sending of any request/letter to petitioner school seeking acceptance of petitioner school of any Sole Arbitrator from any panel of Ld. Sole Arbitrators to be appointed for adjudicating the dispute between the parties in accordance with the afore said Clause 9.1 of the Agreement in question. Having not requested/obtained acceptance of petitioner school before appointment of present Ld. Sole Arbitrator, it cannot be said by any figment of imagination that the present Sole Arbitrator was an acceptable Arbitrator to petitioner school in terms of Clause 9.1 of the Agreement in question between the parties, elicited herein above. Accordingly, composition of Arbitral Tribunal was not in accordance with the agreement of the parties. Per contra, it was a unilateral appointment of Ld. Sole Arbitrator by respondent no. 2 vide letter, aforesaid, dated 04/06/2016 without any acceptability of petitioner school of appointment of Ld. Sole Arbitrator for adjudicating of the dispute between the parties to the lis.
31. At page no. 27 of the arbitral proceedings record is a copy of notice dated 03/10/2016 of arbitration proceeding signed by OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 23 of 28 Ld. Sole Arbitrator addressed to petitioner school with stapled speed post receipt addressed to "MILTON, KARNATAKA, PIN:575001" dated 08/10/2016. Neither the speed post receipt finds mention of the complete address of petitioner school as is mentioned in the claim petition of respondents/claimants before Ld. Sole Arbitrator nor it mentions the correct PIN CODE address of petitioner school. The correct PIN CODE of address of petitioner school is 584123. Any article dispatched vide speed post to wrong address cannot be deemed to be served upon the addressee. Copy of tracking report of the speed post of the aforesaid letter dated 03/10/2016 is placed at page no. 28 of the arbitral proceedings record which depicts booking of said speed post consignment at Nangloi on 08/10/2016 and on 15/10/2016 when delivery of the item was attempted, door was locked and it was again dispatched back to and delivered at Jungpura on 25/10/2016. The notice dated 03/10/2016 , aforesaid, at the top of it find mentions the address of Ld. Sole Arbitrator at Jangpura Extension. In the arbitral proceedings record/ impugned arbitral award there is no mention of receipt of speed post article containing letter/notice dated 03/10/2016 of arbitration proceeding on 25/10/2016 nor the received back speed post article containing letter/notice dated 03/10/2016 of arbitration proceeding has been placed on arbitral proceedings record. In said notice dated 03/10/2016 of arbitration proceedings, it is mentioned by Ld. Sole Arbitrator that she was appointed as sole arbitrator by respondents and she had accepted her appointment to arbitration to settle the dispute between the parties having arbitration clause under the agreement whereas she was not aware of any circumstances nor had any interest that prevents OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 24 of 28 her from arbitration of said matter and whereas she has not been associated in past or at present with the claimant nor does she has any interest in relation to subject matter of the dispute financially, business professional or other kind. It also mentions that she would be having sufficient time to devote to the arbitration. It is the fact of the matter, as made vivid and clear herein above, that notice dated 03/10/2016 of arbitration proceeding was not served upon the petitioner school. It is also the fact of the matter which is borne out of arbitral proceedings record that no disclosure in terms of Section 12 of the Act in the prescribed form in vogue, was ever sent by Ld. Sole Arbitrator to the petitioner school. Accordingly, Ld. Sole Arbitrator did not serve any disclosure to the petitioner school under Section 12 of the Act in writing any circumstances, such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to her independence or impartiality; and which are likely to affect her ability to devote sufficient time to the arbitration and in particular her ability to complete the entire arbitration within a period of twelve months; in accordance with Fifth and Sixth Schedule of the Act.
32. In the case of Impex Corporation & Others vs Elenjikal Aquamarine Exports, 2007 SCC Online Ker 125, it was inter alia held that where no proper and sufficient notice is given to a party by the arbitrator, there is violation of principle of natural justice and these are also violation of Section 18 and 25 of The OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 25 of 28 Act.
33. Supreme Court in the case of M/s Voestalpine Schienen GMBH Vs. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665 has construed Section 12(5) of The Act (as amended) and also the Seventh Schedule to The Act and has held that under Section 12(5) of The Act, notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. It is held that in such an eventuality, when the arbitration clause finds foul with the amended provisions i.e. Section 12(5) of The Act, the appointment of an arbitrator would be beyond pale of arbitration agreement, empowering the Court to appoint such arbitrator(s), as may be permissible. Other party cannot insist for appointment of an arbitrator in terms of the arbitration agreement. In such situation, that would be the effect of non-obstante clause contained in Section 12(5) of The Act.
34. Supreme Court in case of HRD Corporation (Marcus Oil and Chemical Division) vs. Gail (India) Limited (Formerly Gas Authority of India Ltd.), 2017 SCC OnLine SC 1024 has held that if the learned arbitrator fails to file disclosure in terms of section 12(1) of The Act read with Fifth Schedule of The Act, the remedy of the party aggrieved in that event would also be to apply under section 14(2) of The Act to the court to decide about the termination of the mandate of the arbitral tribunal on that ground.
OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 26 of 2835. As aforesaid, there is non compliance of the elicited mandate of Section 12 of The Act by Ld. Sole Arbitrator as she did not send the disclosure in prescribed form specified in the Sixth Schedule of The Act to the present petitioner embodying existence or otherwise of the grounds giving rise to justifiable doubts as to her independence or impartiality of arbitrator including arbitrator's relationship with the claimants/ Counsel for claimants.
36. In view of law laid down in the cases of (i) TRF Ltd. (supra); (ii) Bharat Broadband Network Limited (supra); (iii) Perkins Eastman Architects DPC (supra); (iv) HRD Corporation (supra); (v) Proddatur Cable TV Digi Services (supra) and (vi) M/s Omcon Infrastructure Pvt. Ltd. (supra), no arbitrator can be unilaterally appointed by the respondents/claimants and in this case at the outset vide letter dated 04/06/2016, Sh. Kshitij Aggarwal, Executive-Legal of respondent no. 2 had unilaterally appointed Ld. Sole Arbitrator without any acceptability of petitioner school of such appointment for adjudicating the dispute between the parties to the lis, which was per contra to Clause 9.1 of the Agreement in question between the parties, elicited herein above. Even the mandatory disclosure in terms of Fifth and Seventh Schedule of The Act in the format of Sixth Schedule of The Act was not conveyed by Ld. Sole Arbitrator to the petitioner. The impugned award is accordingly liable to be set aside, under Section 34(2)(a)
(iii), Section 34(2)(a)(v) of The Act and also under Section 34 (2A) of The Act, as the impugned award is vitiated by patent OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 27 of 28 illegality appearing on the face of the award, as elicited in detail herein above. Reliance placed upon the cases of Associate Builders (supra), Ssangyong Engineering & Construction Co. Ltd. (supra), International Nut Alliance LLC (supra), and Impex Corporation & Others (supra).
37. For the foregoing reasons, the petition is allowed and the impugned award is set aside.
38. The parties are left to bear their own costs.
39. File be consigned to record room.
ANNOUNCED IN (GURVINDER PAL SINGH) OPEN COURT District Judge (Commercial Court)-02
On 31st July, 2021. Patiala House Court, New Delhi.
(Deepika) OMP (COMM.) No. 01/2019 Milton Public School vs. M/s Edusmart Services Pvt. Ltd. & Anr. Page 28 of 28