Delhi District Court
This Is A Petition Under Section 34 Of The ... vs . on 23 November, 2022
IN THE COURT OF SH. SACHIN JAIN, ADDL. DISTRICT
JUDGE-02, SOUTH-WEST DISTRICT, DWARKA COURTS,
NEW DELHI
OMP(Comm.) No. 63/2019
CNR No. DLSW010100462018
IN THE MATTER OF:
Deepak Paul ... Objector
Vs.
Kotak Mahindra Bank Limited
27, BKC, C-27 G Block
Bandra Kurla Complex,Bandra (E)
Mumbai - 400051 ... Respondent
Date of institution of petition: 14.05.2018
Date of judgment reserved: 03.09.2022
Date of pronouncement of judgment: 23.11.2022
JUDGMENT
1. This is a petition under section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "Act") filed by the petitioner for setting aside the award dated 15.12.2017 passed by the Ld. Sole Arbitrator.
2. The grounds for challenging the impugned award as stated in the petition are as follows:-
A. The claim for recovery of loan amount was barred by limitation.
B. Petitioner is not liable to pay the loan amount as the loan account was assigned by the erstwhile Citi Corp. India Financial Ltd (CCIF)/ (CCFIL) to the respondent bank by OMP(Comm.)No.63/19 1 letter of assignment dated 18.02.2015 without the consent of the petitioner.
C. No notice is ever served upon the petitioner regarding appointment of the arbitrator or initiation of the arbitration proceedings or passing of the alleged award.
D. The arbitrator is appointed unilaterally by the respondent bank without the consent of the petitioner.
3. Briefly stated, as per the claim statement u/s 23 of the Arbitration and Conciliation Act, 1996, filed by the respondent bank before the sole arbitrator, it is the claim of the bank that the petitioner availed a personal loan of Rs.7 lakhs from CCFIL vide loan agreement no.16369727 repayable in 48 equated installments of Rs.21396/- each. It is further stated in the statement that vide deed of assignment dated 26.11.2014, CCIL assigned the loan account to the respondent bank and on the said date, as per the statement of account, a total amount of Rs.4,18,935.53p was outstanding against the petitioner as on 05.09.2014. It is further stated that the petitioner failed to adhere to the financial discipline of repayment of the loan despite repeated requests and ultimately a demand notice dated 18.08.2017 was issued to the petitioner to pay the outstanding dues including the sum of Rs.4,18,935.53p as on 05.09.2014 along with interest @18% per annum till actual realization. However, despite issuance of notice, petitioner continued making default and now as on 04.09.2017 the petitioner is liable to pay Rs.6,45,160.72 and the bank is also entitled for additional interest @18% till actual realization.
4. On further perusal of the arbitral record, it is observed that after issuance of demand notice on 18.08.2017 wherein 7 days time OMP(Comm.)No.63/19 2 was granted to the petitioner to pay the outstanding amount as on 05.09.2014 along with 18% interest till realization, the letter of intent for appointing Shri Prahlad Narain Khandelwal, retired District & Sessions Judge as sole arbitrator was issued on 28.08.2017 by the respondent bank with copy to the petitioner on all his three addresses and thereafter, the sole arbitrator sent his consent to act as sole arbitrator on 01.09.2017 alongwith disclosure in the prescribed format under sixth schedule and ultimately he was appointed as sole arbitrator on 11.09.2017 and on the same date, the dispute was referred to the arbitrator alongwith the statement of claim was filed and thereafter, notice of initiation of arbitration proceedings was issued to the petitioner and the respondent bank was issued by the arbitrator on 20.09.2017 through registered AD. It is further observed due to refusal of the petitioner to accept notice, he was proceeded ex-parte on 23.10.2017 and after taking ex-parte evidence, the impugned award was passed.
5. Before deciding the validity of the impugned award, it is relevant to observe that the scope of inquiry in Section 34 proceedings is restricted to consideration whether any one of the grounds mentioned in Section 34(2) exists for setting-aside the award.
Section 34 (1) and (2) 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-OMP(Comm.)No.63/19 3
(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 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.
OMP(Comm.)No.63/19 4Explanation 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."
9. It is clear that the scope of the interference by the court under section 34(2) Arbitration Act has been time and again restricted in Catena of Judgments by Hon'ble Superior Courts and it has been held that in proceedings under section 34 of the Act, 1996, the re-appreciation of the facts, evidence or interpretation of the terms of contract in not permissible. What is permissible is, if there is a patent illegality, apparent error on the face of the record, perversity in the award or misconduct by the learned arbitrator.
10. Coming to the case in hand, I have duly examined the grounds pleaded in the objection petition in the light of the facts and circumstances of the case, reply filed by the respondent, legal position and heard the submissions of both the sides at length.
OMP(Comm.)No.63/19 5Conclusion:
Re: Assignment of Loan Agreement without consent of borrower.
11. The issue is no more res-Integra and the Hon'ble High Court of Delhi following the findings given in its earlier judgment of Bestech India Private Ltd. v. MGF Developments Ltd ( (2009) 161 DLT 282), wherein it was held that if the contract is assignable then the arbitration agreement enshrined in the contract will follow the assignment, in its recent judgment in Kotak Mahindra Bank v. S. Nagabhushan & Ors. (2018 SCC OnLine Del 6832) while deciding an application under Section 34 of the Act has held that post the assignment of the loan agreement the rights under the arbitration agreement being in the nature of remedy for enforcement of rights under the agreement are assignable as well.
12. Therefore, in light of the legal position reproduced above, in the present case, clause No. 22 of the loan agreement has specifically mentioned that CCFIL shall be entitled to transfer or assigned any of its obligation rights or benefits to any party without the consent of the borrower and the borrower shall fulfill and perform all his obligations to such transferee or assignee. Therefore, the argument of the objector is devoid of merits and does not call for any interference with impugned the arbitral award.
Regarding non-service of notice
13. Section 3 of the A&C Act, provides as follows:-
OMP(Comm.)No.63/19 63. Receipt of written communications.--(1) Unless otherwise agreed by the parties,--
(a) any written communication is deemed to have been received if it is delivered to the addressee personally or at his place of business, habitual residence or mailing address, and
(b) if none of the places referred to in clause (a) can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressee's last known place of business, habitual residence or mailing address by registered letter or by any other means which provides a record of the attempt to deliver it.
(2) The communication is deemed to have been received on the day it is so delivered.
(3) This section does not apply to written communications in respect of proceedings of any judicial authority.
14. In the present petition it is not disputed by the petitioner that either the 3 different addresses on which the notice was sent does not belong to him or that he has changed the address and shifted to a new address and he duly intimated the new address to the respondent bank. Admittedly, in the present petition, the petitioner mentioned the same address as mentioned in the notice of demand dated 18.08.2017, intimation of appointment of arbitrator and referring the dispute to arbitrator and also the notice by the arbitrator was also issued on the same address apart from the other two addresses of the petitioner. It is the case of the petitioner that he never refused the service of notice and he was wrongly proceeded ex-parte but he never produced anything on record to prove the said assertions, thus, in absence of any contradictory material on record, as per the mandate of Section 3 as reproduced above, once the notice was sent on all the three addresses of the petitioner, it is deemed that the OMP(Comm.)No.63/19 7 notice was duly served upon the petitioner. Hence, the plea of non-receipt of notices is not sustainable.
Re: Claim is time barred
15. Section 43 (2) of the arbitration and conciliation act, 1996 provides that:
"For the purposes of this section and the Limitation Act, 1963 (36 of 1963), an arbitration shall be deemed to have commenced on the date referred to in section 21".
AND Section 21 of the Act provides as under:
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.
16. On combined reading of both the provisions reproduced above, the relevant date for the purpose that whether a particular claim is barred by limitation or not is the date on which the request to refer the dispute to arbitration is received by the respondent i.e. objector /petitioner herein.
17. Coming to the present case, as per the claim statement filed by the respondent bank, it is the case of the respondent bank that on the date of assignment of loan on 26.11.2014, as per Ex-9, the foreclosure amount as on 05.09.2014 was Rs. 4,18,935.53/- against the petitioner. The respondent bank has issued demand notice Ex-10 on 18.08.2017 and it is specifically mentioned that in absence of payment of loan OMP(Comm.)No.63/19 8 amount within 7 days, it shall be presumed that a dispute has been arisen between us and the same shall be referred to the arbitration of an arbitrator as per the loan agreement. Thus, on failure to repay the loan amount within 7 days from the receipt of notice, the dispute is deemed to be referred to the arbitrator. Thus, if the period of limitation of three years is calculated from 05.09.2014, the claim should be made on or before 05.09.2017, whereas in the present case the on the combines reading of Section 43(2) read with Section 21 of the Act, the dispute deemed to be already referred to the arbitrator in terms of notice dated 18.08.2017, thus the claim was filed within the limitation.
Regarding Unilateral appointment of Sole Arbitrator
9. The issue is no more res-Integra, the Hon'ble Supreme Court of India, in the judgment titled as Perkins Eastman Architects DPC & Anr. V. HSCC 2019 SCC OnLine SC 1517, has categorically held that a person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator and thus, unilateral appointment of sole arbitrator has been held as illegal.
10. The judgment passed by the Hon'ble Apex Court in the Perkins (Supra) was further relied upon by the Hon'ble Delhi High Court in recent decision in the matter of Poddatur Ca- ble TV Digi Services v. SITI Cable Network Limited( 2020 SCC OnLine Del 350).
11. The Hon'ble Delhi High Court noted that -
OMP(Comm.)No.63/19 9"...the Managing Director was ineligible from appointing an Arbitrator on the simple logic that a Managing Director of a Company would always have an interest in the outcome of the arbitration proceedings. The interest in this context takes the shape of bias and partiality. As a natural corollary, if the Managing Director suffers this disability, even if he was to appoint another person as an Arbitrator, the thread of bias- ness, partiality and interest in the outcome of the dispute would continue to run. Seen in this light, it can hardly be ar- gued that the judgment in Perkins (supra) will not apply only because the designated Authority empowered to appoint an Arbitrator is other than a Managing Director. Moreover, as brought out by the respondent itself, Company here is run by the Board of Directors."
12. The Hon'ble Bombay High Court also in the matter of Lite Bite Foods Pvt. Ltd. v. Airports Authority of India 2019 SCC OnLine Bom 5163, further clarified the ratio laid down by the Hon'ble Apex Court in the matter of Perkins (Supra).The Court held that appointment of an arbitral tribunal can either be with consent of parties or by an order of the court, there can be no third way.
13. In light of the ratio of the judgments discussed above, in the present case admittedly, the sole arbitrator has been appointed by the respondent bank unilaterally without the consent of the petitioner and thus, the entire arbitration proceedings stands vitiated.
OMP(Comm.)No.63/19 1014. In view of the above discussion on the last objection, the peti- tion is hereby allowed and the impugned arbitral award is hereby set-aside.
15. Copy of this Order be sent to the Sole arbitrator alongwith the Arbitral record for necessary information.
16. No order as to cost.
17. File be consigned to Record Room after due compliance, nec- essary action and as per Rules.
Pronounced in the open Court (SACHIN JAIN)
on 23.11.2022 Addl. District Judge-02, South West
Dwarka Courts Complex, Delhi
OMP(Comm.)No.63/19 11