Delhi District Court
M/S Loops N Style Exports Pvt. Ltd vs M/S Pinnacle Capital Solutions Pvt. Ltd on 18 May, 2024
IN THE COURT OF MS. NEELAM SINGH
DISTRICT JUDGE (COMMERCIAL)-02, SOUTH EAST
SAKET COURTS, NEW DELHI
OMP (COMM) No.- 25/2023
In the matter of
M/S LOOPS N STYLE EXPORTS PVT LTD
Through its AR/ Director
Sh. Sidhant Dhingra
R/o 1-E/15, Jhandewalan Extension,
New Delhi-110055 ......Petitioner
Vs.
M/s Pinnacle Capital Solutions Pvt. Ltd.
C/o Through its Authorized Signatory,
2nd Floor, Plot No. 100, Sector-43,
DLF Phase 5, Gurugram-122009 .... Respondent
Date of Institution : 23.03.2023
Date of Final Arguments : 16.05.2024
Date of Judgment : 18.05.2024
Final Decision : Allowed
Section 34 Arbitration and Conciliation Act, 1996
1. The present petition, filed under Section 34 of the
Arbitration and Conciliation Act, 1996 ("the Act"), seeks to set
aside the arbitral award dated 28.02.2018 issued by the Honorable
Sole Arbitrator Sh. Iqbal A. Ansari, Chief Justice (Retd.), Patna
High Court.
OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 1 of 24
M/s Pinnacle Capital Solutions Pvt. Ltd.
FACTUAL BACKGROUND
2. The present petition has been filed by the petitioner challenging the award dated 28.02.2018 passed by the Hon'ble Sole Arbitrator, Sh. Iqbal A. Ansari, Chief Justice (Retd), Patna High Court, from his office at A-23(A), Ground Floor, Kailash Colony, New Delhi. The award allowed the respondent's claim against M/s Loops & Style Pvt Ltd (hereinafter referred to as the "Company"), Sh. Sidhant Dhingra, Sh. Bharat Makkar, and M/s Silverstar Fashion Pvt Ltd, jointly and severally, for the principal amount of Rs.1,66,94,777/- along with Rs 10,00,000/- as costs and expenses of the arbitration proceedings.
3. The director of the petitioner company, Sh. Sidhant Dhingra, also challenged the order dated 18.12.2018 of the Hon'ble Sole Arbitrator, Sh. Iqbal A. Ansari, Chief Justice (Retd), Patna High Court, before the court of the Ld. ADJ, Commercial Court, Gurugram. This was in response to the execution petition of the impugned arbitral award filed by the respondent in the same court. However, the Ld. Commercial Court, Gurugram, returned the application under Section 34 of the Arbitration Act without examining the merits of the award, vide order dated 17.11.2022, on the grounds that it lacked jurisdiction and that the Commercial Court of New Delhi had jurisdiction to entertain the case.
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4. The petition was initially filed before the Ld. Gurugram courts, Haryana, pursuant to Section 42 of the Arbitration Act, as the execution petition of the impugned award was pending before those courts. However, the Ld. Commercial Court returned the application while relying on the judgment of the Hon'ble Supreme Court in Emkay Global Financial Services Pvt Ltd vs. Girdhar Sondhi (2018) 9 SCC 49, which held that execution proceedings could be filed anywhere, whereas a petition under Section 34 of the Arbitration Act must be filed where the seat of arbitration is situated.
5. The respondent, M/s Pinnacle Capital Solutions Pvt Ltd, filed a claim before the Hon'ble Arbitrator seeking recovery from M/s Loops N Style Pvt Ltd and impleaded Sh. Sidhant Dhingra and Sh. Bharat Makkar as directors of the company, and also impleaded M/s SilverStar Fashions Pvt Ltd as respondents.
6. It is submitted by Ld. Counsel for the petitioner that according to the award passed by the Hon'ble Arbitrator, neither the petitioner nor its directors were served with the notice of initiation of arbitration proceedings. It is submitted that the petitioner and other respondents in the claim petition were not served through post at any of their addresses with the summons of the arbitration proceedings.
OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 3 of 24M/s Pinnacle Capital Solutions Pvt. Ltd.
7. The award indicates that the service of the summons of the arbitration proceedings was made upon the petitioner and other respondents through publication in the newspapers, The Hindu and Rastriya Sahara, on 13.09.2018. The Hon'ble Arbitrator held in the award that neither the petitioner nor the other respondents in the claim petition appeared after the service through publication, and therefore, they were proceeded ex-parte vide order dated 15.09.2018, i.e., within two days of the publication of the notice, without waiting for the completion of the statutory period for filing a reply.
8. As the respondents in the claim petition were proceeded ex- parte, the respondent herein was heard, and their claim was admitted. Consequently, the award dated 28.02.2018 was passed by the Ld. Arbitrator against all the respondents in the claim petition, holding them jointly and severally liable.
9. The petitioner came to know about the award on 15.02.2021 when counsel for the petitioner was served with copies of the pleadings and documents before the court of the Ld. ADJ-Cum- Presiding Judge, Exclusive Commercial Court at Gurugram, when counsel for the petitioner was present in another case titled as "ARB 139/2019 Ravi Dhingra vs. M/s Pinnacle Capital Solutions Pvt Ltd".
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10. The petitioner has filed the present petition challenging the award dated 28.02.2018 passed by the Ld. Arbitrator on several grounds, including procedural irregularities and lack of jurisdiction.
GROUNDS FOR CHALLENGING THE AWARD;
11. The petitioner has challenged the impugned award on following grounds:
a. The impugned award is liable to be set aside as it was not passed after considering the complete facts of the case and without following the principles of law.
b. The impugned award is dated 28.02.2018, whereas the respondent invoked the arbitration clause and initiated the arbitration proceedings vide notice dated 08.05.2018. Thus, the award is dated even prior to the invocation of the arbitration proceedings.
c. The petitioner and its directors were served with notice of the arbitration proceedings through publication on 13.09.2018 and were proceeded ex-parte on 15.09.2018, showing that the award was made even prior to the service of the petitioner. Thus, the OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 5 of 24 M/s Pinnacle Capital Solutions Pvt. Ltd.
award is liable to be set aside on this ground alone.
d. The award has been passed by the Ld. Arbitrator against the company M/s Loops N Style Pvt Ltd and not against M/s Loops & Style Exports Pvt Ltd. M/s Loops N Style Pvt Ltd and M/s Loops & Style Exports Pvt Ltd are separate companies registered with the registrar of companies and are separate legal entities.
e. The respondent has filed an execution petition titled as "M/s Pinnacle Capital Solutions Pvt Ltd vs. Loops & Style Exports Pvt Ltd & Anr" (EXE NO 1243/2019) which is pending in the court of the Ld. ADJ-Cum-Presiding Judge, Exclusive Commercial Court at Gurugram. The award dated 28.02.2018, for which the respondent is seeking execution, has been passed against M/s Loops & Style Pvt Ltd, which is a different company and is not related to the petitioner. Thus, the award passed by the Ld. Arbitrator is liable to be set aside.
f. The appointment of the Arbitrator was arbitrary as the respondent, M/s Pinnacle Capital Solutions, appointed the arbitrator itself without any consultation with the petitioner. This has also been held in the judgment titled as Perkins Eastman Architects DPC & Anr vs. HSCC (India) Ltd. (2019) 17 SCR 275.OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 6 of 24
M/s Pinnacle Capital Solutions Pvt. Ltd.
g. The Ld. Arbitrator did not follow the principles of natural justice. There was not sufficient material before the Ld. Arbitrator to proceed ex-parte against the objector/petitioner.
h. The Hon'ble Arbitrator held in the impugned award that the petitioner was proceeded ex-parte vide order dated 15.09.2018 after the publication in the newspaper dated 13.09.2018. It was not clarified whether the publication in the newspaper was for the service of the company only or its directors. The propriety of the service through publication needs to be examined.
i. There has been no compliance with Section 31(5) of the Arbitration and Conciliation Act as a signed copy of the arbitral award in original has not been sent to the petitioner.
12. The limitation for filing the petition to challenge the arbitral award is three months from the date on which the party has received the signed copy of the arbitral award. In the present case, the arbitral award was passed on 28.02.2018, but the petitioner has not received the signed copy of the arbitral award to date, indicating non-compliance with Section 31(5) of the Arbitration Act. The petitioner came to know about the award on 15.02.2021 when the counsel for the respondent, M/s Pinnacle Capital Solutions Pvt Ltd, served the copy of the execution petition to the petitioner. Consequently, objections under Section 34 of the OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 7 of 24 M/s Pinnacle Capital Solutions Pvt. Ltd.
Arbitration and Conciliation Act have been filed.
13. Given these arguments, petitioner filed the present petition to challenge the arbitral award that ruled in favor of respondent. Petitioner request the court to set aside this award.
14. Although, no formal reply has been filed on behalf respondent to the present petition, written submissions have been filed on behalf of respondent by submitting that the petition/application filed on behalf of petitioner is beyond the period of limitation as specified under the Arbitration and Conciliation Act, 1996. The Petitioner filed the application after the specified period of limitation and without an application for condonation of delay. The time limit to challenge the Award has expired, and there is no provision under law to condone the delay. Therefore, the petition is barred by limitation.
15. It is further by Ld. Counsel for the respondent that the present petition challenging the Award dated 28.02.2019 is not sustainable as it does not disclose any grounds under Section 34 of the Arbitration and Conciliation Act that warrant interference. The learned Arbitrator considered all contentions and material placed by the parties, providing sound reasoning for the conclusions. The Award and its reasons cannot be said to be perverse or against public policy, thus meriting dismissal of the petition.
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16. Reference has been made by the respondent to the Hon'ble Supreme Court's Judgment in McDermott International Inc. vs. Burn Standard Co. Ltd. (2006) 11 SCC 181, which reiterates the supervisory role of the court in arbitration proceedings, where intervention should occur only in cases of fraud or bias. It is submitted that no grounds are made out to challenge the Award under Section 34 of the Arbitration and Conciliation Act, 1996 in this matter.
17. The Respondent submits that the conclusions arrived at by the learned Arbitrator are not arbitrary, capricious, or perverse. The findings are based on documents and material placed by the parties. It is a settled position in law that while adjudicating a petition under Section 34, the scope of inquiry is restricted. The Court does not act as an Appellate Court and cannot reappraise evidence. The scope is limited to ensuring that the Arbitrator considered the pleadings and evidence and that the view taken is one of the possible views.
18. It is further by Ld. Counsel for respondent that the objection regarding the alleged unilateral appointment of the Arbitrator is without merit. Despite having knowledge of the Constitution of the Arbitral Tribunal and the commencement of arbitration proceedings, the Petitioner did not challenge the Tribunal's constitution. It is well settled that the constitution of the Arbitral OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 9 of 24 M/s Pinnacle Capital Solutions Pvt. Ltd.
Tribunal cannot be a ground to challenge the Award under Section
34. The reliance on the Perkins judgment is misplaced as it pertains to an application under Section 11 of the Act, not Section
34. The Respondent submits that the present petition be dismissed on the above grounds.
Points of Consideration before the Court
19. I have heard arguments advanced on behalf of both the parties and have perused the case file as well as original arbitral record.
20. The Respondent claimed that the petition is time-barred. However, as established in judicial precedents like Union of India v. Tecco Trichy Engineers (2005) 4 SCC 239 & Contractors and Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies Pvt. Ltd. AIR 2021 SUPREME COURT 2493 , the limitation period for filing such a petition begins only when the party receives a signed copy of the award. The petitioner came to know about the award on 15.02.2021 when counsel for the petitioner was served with copies of the pleadings and documents before the court of the Ld. ADJ-Cum-Presiding Judge, Exclusive Commercial Court at Gurugram, when counsel for the petitioner was present in some another case. In this case, the Petitioner has not received a signed copy of the arbitral award, and the OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 10 of 24 M/s Pinnacle Capital Solutions Pvt. Ltd.
Respondent failed to provide evidence of delivery. Consequently, the limitation period has not commenced, making the petition timely and valid.
21. In considering the petition and the grounds provided therein, the unilateral appointment of the arbitrator by the respondent stands out as a significant procedural irregularity. The petitioner contends that the respondent appointed the arbitrator without any consultation or agreement from their side, thereby violating the principle of party autonomy, which is fundamental in arbitration proceedings. This unilateral appointment undermines the fairness and impartiality of the arbitration process, as the arbitrator may be perceived as biased towards the appointing party.
22. The petitioner has cited relevant case law, such as the judgment passed by Hon'ble Apex Court in Perkins Eastman Architects DPC & Anr vs HSCC (India) Ltd. (2019)17 SCR 275 , to support their argument that the arbitrator's appointment should have been a mutual decision or, at the very least, conducted through a fair and transparent process. The petitioner emphasizes that such unilateral appointments erode the integrity of arbitration proceedings and jeopardize the trust and confidence of parties in the arbitration system.
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23. Moreover, Ld. Counsel for petitioner asserts that this unilateral appointment may have influenced the arbitrator's decision-making process, leading to an award that does not adequately consider the petitioner's perspective or legal rights. The absence of mutual agreement on the arbitrator's appointment raises concerns about the arbitrator's independence and impartiality, as they may be inclined to favor the appointing party, thus compromising the fairness of the arbitration proceedings.
24. The core issue in this case revolves around the appointment of the arbitrator. The Petitioner argues that the Respondent appointed the sole arbitrator without their involvement, constituting a significant breach of Section 12(5) of the Arbitration and Conciliation Act, 1996. This section explicitly lays down the framework for arbitrator appointment, stating:
"12(5) Where a number of arbitrators are to be appointed by the parties, the parties shall appoint the arbitrators in accordance with the agreement. If the parties fail to agree on the appointment of an arbitrator, the appointment shall be made, upon application by either party, by the court referred to in section 14."
25. The provision underscores the importance of mutual consent in arbitrator selection. A fundamental principle of arbitration is the impartiality of the arbitral tribunal. When one party unilaterally appoints the arbitrator, this essential principle is compromised. The specter of bias taints the entire process, raising OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 12 of 24 M/s Pinnacle Capital Solutions Pvt. Ltd.
doubts about the fairness of the outcome.
26. Law laid by Hon'ble Supreme Court in authoritative Judgments debarring "Unilateral Appointment of Sole Arbitrators":
(i) TRF Limited Vs. Energo Engineering Projects Ltd. ((2017) 8 SCC 377): In the TRF Limited case, Hon'ble Supreme Court held that when one party unilaterally appoints an arbitrator without the consent of the other party, it amounts to a breach of the principles of natural justice and fairness. The court emphasized the importance of neutrality and impartiality of arbitrators and ruled that such unilateral appointments are against the fundamental tenets of arbitration. This judgment laid down a significant precedent against unilateral appointments of arbitrators.
(ii) Voestalpine Schienen GMVH Vs. DMRC Ltd. (2017 4 SCC
665): In this case, Hon'ble Supreme Court reaffirmed the principle that unilateral appointments of arbitrators are against the principles of natural justice. The Court held that a party cannot appoint an arbitrator unilaterally if the arbitration agreement does not explicitly grant such authority. This judgment further supports the position against unilateral appointments.OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 13 of 24
M/s Pinnacle Capital Solutions Pvt. Ltd.
(iii) Perkins Eastman Architects DPC Vs. HSCC India Ltd. (Supra): Hon'ble Supreme Court, in this case, emphasized that an arbitration clause that allows one party to unilaterally appoint an arbitrator is against the principles of fairness and neutrality. It held that such clauses are not valid under the law, and an arbitrator should be appointed through a fair and impartial process.
(iv) Bharat Broadband Network Vs. United Telecoms Ltd. (2019 5 SCC 755): This judgment reiterated the principle that unilateral appointments of arbitrators are contrary to the principles of natural justice and fairness. Hon'ble Apex Court held that such appointments are invalid unless both parties explicitly agree to such a process in the arbitration agreement.
(v) HARSAC and Anr. Vs. Pan India Consultants (2021 3 SCC
103): In this case, Hon'ble Supreme Court emphasized the need for neutrality and impartiality in arbitration proceedings. It held that unilateral appointments of arbitrators are against these principles and should be avoided.
27. These judgments collectively establish a clear stance against unilateral appointments of arbitrators and emphasize the importance of neutrality, fairness, and the consent of both parties in the arbitration process.
OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 14 of 24M/s Pinnacle Capital Solutions Pvt. Ltd.
28. Hon'ble Delhi High Court in case title 'Man Industries (India) Limited Vs. Indian Oil Corporation Limited, OMP (COMM) 252/2018, dt. 01.06.2023' after considering the catena of judgments held as under :
"....11. He submits that in the present case, the petitioner has never challenged the eligibility of the learned Sole Arbitrator to adjudicate on the disputes between the parties. He submits that, in fact, the learned Arbitrator was appointed at the request of the petitioner. The learned Arbitrator before entering upon the reference submitted his disclosure as required under Section 12 of the Act. The petitioner never raised any objection to the eligibility of the learned Sole Arbitrator. Thereafter, the petitioner, in fact, twice filed applications under Section 29A of the Act seeking extension of the mandate of the learned Arbitrator. He submits that the filing of the application under Section 29A of the Act by the petitioner would, in fact, satisfy the Proviso to Section 12(5) of the Act and the ineligibility, if at all, attached to the learned Sole Arbitrator would be waived.
12. On the merits of the Arbitral Award, he submits that the agreement between the parties provides for a „Delay Delivery Discount‟ of a maximum of 10% of the total contract value. In the present case, the learned Arbitrator has found the petitioner guilty of delay in making supply of the pipes. Thereafter, in terms of the judgment of the Supreme Court in M/s Construction & Design Services v. Delhi Development Authority, (2015) 14 SCC 263, the learned Arbitrator has observed that the contract in question, being of public interest, there can be a presumption of the delay having resulted in damages to the respondent on account of such delay. He submits that the view taken by the learned Arbitrator is a plausible view and this Court in exercise of its limited jurisdiction under Section 34 of the Act would not be entitled to interfere in the same.
13. I have considered the submissions made by the learned counsels for the parties.
14. At the outset, it is important to emphasize that the respondent has not disputed that, though in terms of the OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 15 of 24 M/s Pinnacle Capital Solutions Pvt. Ltd.
Arbitration Agreement and on the request of the petitioner, the learned Arbitrator was appointed by the respondent alone. The Arbitration Agreement between the parties was contained in Clause 4.26.1 of the Special Conditions of Contract attached to the Purchase Order and is reproduced hereinbelow :-
"4.26.1 Any dispute or difference of any kind at any time(s) between the Purchaser and the vendor arising out of in connection with or incidental to the contract (including any dispute or difference regarding the interpretation of the contract or the termination thereof, or resulting from a termination thereof), shall be referred to arbitration by a Sole Arbitrator appointed by the General Manager. The provisions of the Arbitration & Conciliation Act, 1996 and all statutory re-enactments and modifications thereof and the Rules made thereunder shall apply to all such arbitrations. The venue of the arbitration shall be New Delhi (India)."
(Emphasis Supplied)
15. The petitioner invoked the Arbitration Agreement vide its notice dated 15.01.2016, requesting as under:-
"We, therefore, in terms of Arbitration Clause request you to nominate a person to act as an Arbitrator. Please ensure that names being proposed meet the requirement of independence and impartiality as envisaged in the Arbitration and Conciliation (Amendment) Ordinance, 2015."
16. On the above request, the respondent appointed the learned Arbitrator vide letter dated 15.02.2016.
17. Relying upon its earlier judgment in TRF Limited (supra), the Supreme Court in Perkins Eastman Architects DPC (supra) has held that the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a Sole Arbitrator. A party to the Agreement, therefore, would be disentitled to make any appointment of an Arbitrator.
18. In Bharat Broadband Network Limited (supra), the Supreme Court held that Section 12(5) of the Act provides for de jure inability of an Arbitrator to Act as such. The only way in which this ineligibility can be removed is by fulfilling the conditions in the Proviso to Section 12(5) of the Act, which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 16 of 24 M/s Pinnacle Capital Solutions Pvt. Ltd.
writing. The "express agreement in writing" has reference to a person who is interdicted by the Seventh Schedule, but who is stated by the parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the Seventh Schedule. It was held that where the Arbitrator is unable to perform his function, being ineligible under Section 12(5) of the Act, the appointment of the Arbitrator itself was void.
19. In Govind Singh (supra), a Division Bench of this Court considering the above judgments held that even if the party does not raise an objection to the appointment of the Arbitrator and participates in the arbitral proceedings without raising any objection to the appointment of the Arbitrator, it is not a waiver of such party‟s right under Section 12(5) of the Act. It was further held that an Arbitral Award passed by an Arbitrator who is ineligible to act as an Arbitrator cannot be considered as an Arbitral Award at all. The ineligibility of an Arbitrator goes to the root of his jurisdiction and the Arbitral Award cannot be considered as valid.
20. In MS Bridge Building Construction Co. Pvt. Ltd. (supra), a learned Single Judge of this Court, relying upon the above judgments, rejected the plea of the respondent therein that the petitioner therein having filed applications for extension of the mandate of the Arbitrator is deemed to have waived the applicability of Section 12(5) of the Act and cannot assail the Award on that ground.
21. In JMC Projects (India) Ltd. (supra), another learned Single Judge of this Court again rejected the plea of the respondent observing that the filing of applications for extension of time for continuance and completion of the arbitral proceedings, or applications to the Arbitrator for extension of time to file the affidavit of evidence etc., cannot constitute an "agreement in writing" within the manner of the Proviso to Section 12(5) of the Act.
22. In view of the above authorities, there can be no doubt that the learned Arbitrator appointed by the respondent was de jure ineligible to act as such. The petitioner by its participation in the arbitration proceedings or by its filing of applications under Section 29A of the Act seeking extension of the mandate of the learned Arbitrator, cannot be said to have waived the ineligibility of the learned Arbitrator under Section 12(5) of the Act, and, therefore, OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 17 of 24 M/s Pinnacle Capital Solutions Pvt. Ltd.
the Arbitral Award passed by the learned Arbitrator is invalid.
23. The only question, therefore, left to be considered by this Court is whether the petitioner can now be allowed to agitate the above ground by way of an amendment application, which admittedly has been filed much beyond the period prescribed in Section 34(3) of the Act.
24. In Hindustan Construction Company Limited (supra), the Supreme Court has held that the effect of Section 34(3) of the Act is not to completely rule out any amendment being allowed to be made in the application for seeking setting aside of the Award howsoever material or relevant it may be. The Court held as under:-
"29. There is no doubt that the application for setting aside an arbitral award under Section 34 of the 1996 Act has to be made within the time prescribed under sub-section (3) i.e. within three months and a further period of thirty days on sufficient cause being shown and not thereafter. Whether incorporation of additional grounds by way of amendment in the application under Section 34 tantamounts to filing a fresh application in all situations and circumstances. If that were to be treated so, it would follow that no amendment in the application for setting aside the award howsoever material or relevant it may be for consideration by the court can be added nor existing ground amended after the prescribed period of limitation has expired although the application for setting aside the arbitral award has been made in time. This is not and could not have been the intention of the legislature while enacting Section
34.
30. More so, Section 34(2)(b) enables the court to set aside the arbitral award if it finds that the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force or the arbitral award is in conflict with the public policy of India. The words in clause (b) "the court finds that" do enable the court, where the application under Section 34 has been made within prescribed time, to grant leave to amend such application if the very peculiar circumstances of the case so warrant and it is so required in the interest of justice."OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 18 of 24
M/s Pinnacle Capital Solutions Pvt. Ltd.
25. In Lion Engineering Consultants (supra), the Supreme Court held that even without an amendment in the petition, a plea of lack of jurisdiction of the Arbitrator can be raised even though no such objection was raised under Section 16 of the Act.
26. In Hindustan Zinc Limited (HZL) (supra), the Court held that if there is an inherent lack of jurisdiction of the Arbitrator, the plea can be taken up any stage and also in collateral proceedings. Such plea can be taken even where the party has consented to the appointment of the Arbitrator.
27. Applying the above principles to the facts of the present case, the plea of the Arbitrator being de jure ineligible to act as such is a plea of lack of jurisdiction. This plea can be allowed to be raised by way of an amendment and even without the same.
28. In Friends and Friends Shipping Pvt. Ltd. (supra), relied upon by the learned counsel for the respondent, the grounds that were sought to be added by way of an amendment were on the challenge to the neutrality of the Arbitrator. A ground to demonstrate fraud was also sought to be inserted. The Court, in fact, distinguished the judgment of the Supreme Court in Ellora Paper Mills Limited v. State of Madhya Pradesh, (2022) 3 SCC 1, by observing as under:-
"8. At the outset it is necessary to bear in mind that by way of the proposed amendment the grounds which are now being sought to be inserted have absolutely no foundation in the petitioner's application preferred under Section 34 of the Arbitration Act. As has been rightly noticed by the learned District Judge at no point of time any objection about neutrality of the Arbitrator was raised by resorting to Section 12, 13 or 15 of the Arbitration Act. This needs to be emphasized for the sole reason to ascertain as to if, the proposed amendment merely intends to add some facts to the pending challenge to the award or is it that it is intended to put forth absolutely new challenge xxxxx
10. True it is that in the matter of Ellora Paper Mills Limited (supra), the Section 12(5) which is inserted in the year 2015 has been held to govern a pending arbitration proceeding. However, it is to be borne in mind that it was a proceeding which was initiated OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 19 of 24 M/s Pinnacle Capital Solutions Pvt. Ltd.
under Sections 11, 14 and 15 and although the Arbitral Tribunal was constituted many years ago it had never commenced its proceeding. This is not the fact situation in the matter in hand. In this matter, without raising any objection at any earlier point of time on account of neutrality of the arbitrator by resorting to Sections 12, 13 and 14, an award has been passed and even it has been put to execution. Therefore, the petitioner is not entitled to derive any benefit from the decision in the matter of Ellora Paper Mills Limited (supra) as well."
29. The above judgment would, therefore, not come to the aid of the respondent, as in the present case, the objection on the learned Arbitrator is under Section 12(5) of the Act and of him being de jure ineligible to act as an Arbitrator.
30. In view of the above, it has to be held that the learned Arbitrator was de jure ineligible to act as such and the Award passed by the learned Arbitrator is void and unenforceable. The same is, therefore, set aside.
29. The award passed by the arbitrator who is unilaterally appointed is void ab initio and also unenforceable. Hon'ble Delhi High Court in case title 'Kotak Mahindra Bank Ltd. Vs. Narendra Kumar Prajapat, Neutral Citation Number : 2023:DHC:3705-DB, EFA(COMM) 3/2023, dt. 17.05.2023' held as under:
"..5. In the present case, the learned Commercial Court had found that the arbitrator appointed by the claimant (DH Finance Company) was ineligible to be appointed as an arbitrator by virtue of Section 12(5) of the A&C Act as interpreted by the Supreme Court in the aforementioned decisions.
6. The learned counsel appearing for the appellant does not seriously dispute that the arbitrator unilaterally appointed by the claimant was ineligible to be appointed as an arbitrator by virtue of Section 12(5) of the Act. He has largely focused his contentions on assailing the decision of the learned Commercial Court to award costs. It was also contended that the OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 20 of 24 M/s Pinnacle Capital Solutions Pvt. Ltd.
respondent was aware of the appointment of the arbitrator and had not raised any objection to such appointment; therefore the respondent is now precluded from challenging the impugned award.
7. We find little merit in the aforesaid contentions. The proviso to Section 12(5) of the A&C Act is unambiguous. A party can waive its right to object to the ineligibility of an arbitrator under Section 12(5) of the A&C Act but the same is subject to two conditions. First, that the waiver is required to be by and done by an express agreement in writing; and second, that such agreement is entered into after the disputes have arisen. Unless both the aforesaid conditions are satisfied, there can be no waiver of the ineligibility of an arbitrator.
8. In Bharat Broadband Network Limited v. United Telecoms Limited: (2019) 5 SCC 755, the Supreme Court had authoritatively held that waiver of a right to object to ineligibility of an arbitrator under Section 12(5) of the A&C Act cannot be inferred by conduct of a party. Such waiver can only be by an express agreement in writing. The Court had also clarified that "the expression 'express agreement in writing' refers to an agreement made in words as opposed to an agreement which is to be inferred by conduct".
9. In view of the above, the failure, if any, on the part of the respondent to object to the unilateral appointment of the sole arbitrator, cannot be construed as waiver of his right under Section 12(5) of the A&C Act.
The award rendered by an arbitrator who is ineligible to be appointed as such cannot be enforced.
11. In HRD Corporation v. GAIL (India) Ltd.: (2018) 12 SCC 471, the Supreme Court held as under:
"Since ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes "ineligible" to act as arbitrator. Once he becomes ineligible, it is clear that, under Section 14(1)(a), he then becomes de jure unable to perform his functions inasmuch as, in law, he is regarded as "ineligible". In order to determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13. Since such a person OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 21 of 24 M/s Pinnacle Capital Solutions Pvt. Ltd.
would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground."
[emphasis added]
12. In Govind Singh v. M/S Satya Group Pvt Ltd & Anr.: 2023/DHC/000081 this court held as under:
"In view of the above, the remaining question to be addressed is whether an arbitral award rendered by a person who is ineligible to act as an arbitrator is valid or binding on the parties. Clearly, the answer must be in the negative. The arbitral award rendered by a person who is ineligible to act as an arbitrator cannot be considered as an arbitral award. The ineligibility of the arbitrator goes to the root of his jurisdiction. Plainly an arbitral award rendered by the arbitral tribunal which lacks the inherent jurisdiction cannot be considered as valid. In the aforesaid view, the impugned award is liable to be set aside as being wholly without jurisdiction."
13. The Learned Commercial Court has held that an award rendered by a person who is ineligible to act as an Arbitrator by virtue of the provisions of Section 12(5) of the A & C Act is a nullity and, therefore, cannot be enforced. It has accordingly dismissed the enforcement petition under Section 36 of the A&C Act with the cost quantified as ₹25,000/-.
14. This Court finds no infirmity with the aforesaid view. A person who is ineligible to act an Arbitrator, lacks the inherent jurisdiction to render an Arbitral Award under the A&C Act. It is trite law that a decision, by any authority, which lacks inherent jurisdiction to make such a decision, cannot be considered as valid. Thus, clearly, such an impugned award cannot be enforced.."
30. This Court finds merit in the present petition to set aside the ex-parte arbitral award dated 28.02.2018. The petitioner raised serious concerns about the validity of the entire arbitration process due to a fundamental lack of due process. Ld. Counsel for OMP (COMM) 25/2023 M/s Loops N Style Pvt Ltd. Vs. Page 22 of 24 M/s Pinnacle Capital Solutions Pvt. Ltd.
petitioner convincingly argued that they were never informed about the appointment the Sole Arbitrator. Section 21 of the Arbitration and Conciliation Act, 1996, mandates that parties be notified of the appointment of an arbitrator. The absence of such notification renders the appointment unilateral and undermines the legitimacy of the arbitration process.
31. The Court acknowledges the established legal principle laid down in above cited precedents ( supra), which states that an award made by an arbitrator who has not been appointed in accordance with the Act or where a party was not given proper notice, is liable to be set aside. In this case, both elements seem to be present. The unilateral appointment and subsequent ex-parte award raise serious questions about the fairness of the process.
32. Considering the aforementioned legal principles and the specific facts presented in the present petition, this Court finds sufficient grounds to set aside the ex-parte arbitral award dated 28.02.2018. The lack of proper notice, unilateral appointment of the arbitrator, and potential concerns about bias all contribute to a scenario where the arbitral process was fundamentally flawed.
Conclusion;
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33. In conclusion, the judicial precedents cited above provide a strong legal basis for the Petitioners' arguments against the validity of the arbitral award. The unilateral appointment of the arbitrator and the ineligibility of the arbitrator under Section 12(5) of the Act are particularly significant issues that support the Petitioners' case. The entire arbitration proceedings are perverse and patently illegal. The arbitrator has been appointed in violation of Section 12 (5) of the Arbitration and Conciliation Act, 1996. Thus impugned award is non-est and void ab initio. The entire arbitration proceedings stand vitiated. Accordingly, the impugned award dated 28.02.2018 is set aside. Petition is allowed and disposed of accordingly. File be consigned to record room after due compliance.
Announced & dictated
in the open Court on
18th May, 2024 (NEELAM SINGH)
District Judge
(Commercial Court-02)
South-East, Saket Courts, ND
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M/s Pinnacle Capital Solutions Pvt. Ltd.