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[Cites 19, Cited by 0]

Delhi District Court

Sh. Ram Prakash Sharma vs G.E. Money Financial Services Ltd on 28 April, 2011

              IN THE COURT OF SHRI VIJAY KUMAR DAHIYA
           ADDL. DISTRICT JUDGE­II, ROHINI COURTS, DELHI


Arb.  No. 238/10
   1. Sh. Ram Prakash Sharma
   2. Smt. Malti Devi, 
      W/o Sh. Ram Prakash Sharma, 

       Both R/o D­1132, Gali No. 7, 
       Ashok Nagar, 
       Delhi­110093.                                         .......... Petitioners

                                   VERSUS 

   1. G.E. Money Financial Services Ltd.
      (Earlier Known as GE Countarywide Consumer 
      Services Ltd. )
      Through Its Authorised Officer 
      At:  401­402, Fourth Floor, 
      Aggarwal Millenium Tower, 
      E­1, 2, 3, Netaji Subhash Place, 
      Pitam Pura, New Delhi­110034. 
   2. Sh. Neeraj Malhotra, 
      E­25, LGF, Jangpura Extension, 
      New Delhi­110014.                      ............... Respondents 

Date of Institution the suit                                 : 30.09.2010
Date on which the order was reserved                         : 23.04.2011
Date of decision                                             : 28.04.2011


ORDER

Vide this judgment I shall dispose off this petition filed Arb. No. 238/10 Page no. 1 of 26 against the above mentioned respondent by petitioner U/s 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act). It is directed against the award passed by the Ld. Sole Arbitrator by reference made in terms of agreement/contract allegedly executed between the parties. The petitioner has assailed upon the award passed by the Ld. Sole Arbitrator on the ground that Ld. Arbitrator has passed the ex­parte award by misappreciating the evidence placed on record. Award passed by the Ld. Sole Arbitrator is pleaded to be set aside.

1. Brief facts, in nut­shell, are that petitioner no. 1 approached the claimant/respondent for grant of loan of Rs. 8,25,000/­ for a period of 13 years and petitioner no. 1 had agreed to repay the said loan amount along with interest @ 16% p.a. qua with monthly rests in 156 equal monthly installments of Rs. 12,596/­ each. Petitioner no. 1 was the principal borrower and his wife, Arb. No. 238/10 Page no. 2 of 26 petitioner no. 2 was a guarantor of this loan agreement. It is further submitted that rate of interest was later on enhanced to 17.85% w.e.f 18.11.2006 in order to secure the above said loan. It has been further submitted that in order to secure the above said loan, petitioner created a equitable mortgage of their immovable property bearing no. D­1132/7, Ashok Nagar, Shahdara, Delhi­110093 in favour of the respondents by depositing the title deeds of the said property. The petitioner had also executed various other documents i.e. demand promissory note etc. but the petitioner had failed to repay the loan and defaulted in payment of EMIs. Therefore, the claimant/respondent invoked clause 8.2 of the loan agreement and recalled the entire loan amount along with the interest and other charges. Thereafter, a legal notice dated 13.05.2009 wsa issued by the respondent/claimant to the petitioner calling upon them to pay the sum of Rs. 8,60,644.15/­.

Arb. No. 238/10 Page no. 3 of 26 Respondent/claimant invoked the arbitration clause 11.1 as provided in the loan agreement and referred the dispute to the Ld. Sole Arbitrator, Sh. Neeraj Malhotra vide letter dated 21.07.2009.

2. The registered AD notices were sent by the Tribunal to both the petitioners on 12.08.2009 and same were received with acknowledgment duly received by the respondent/claimant and petitioners were proceeded ex­parte on 18.09.2009. Thereafter, arbitral proceedings were concluded on 31.05.2010 and impugned order was passed and copy of the same was sent to the petitioner/non­claimant by way of registered AD post which has been received by the petitioner on 04.09.2010.

3. It is submitted in this petition that ex­parte award was passed against the petitioner and petitioner came to know about the passing of any award on 04.09.2010 when they received the copy of award by way of registered AD post. It Arb. No. 238/10 Page no. 4 of 26 has been submitted that respondent have acted in a casual and callous manner and increased the rate of interest at its whims and notions and as such the number of installments has also been increased. It is further submitted that petitioner were granted a loan of Rs. 7,97,000/­ through cheques and no process charges were to be recovered from the petitioner. It has been further stated that claimant/respondent is a financial institution and provide services to its consumers and if any of its consumer raised any issue, it should have resolved that issue, but the respondent/claimant without paying any attention to the issue raised by the petitioner/non­claimant, got the impugned Award passed without complying with the mandatory statutory requirements of the service of petitioner/non­claimant. This is further alleged that claimant/respondent has changed the terms and conditions of the loan agreement and the petitioner has raised this issue, but the respondent/claimant did Arb. No. 238/10 Page no. 5 of 26 not pay any attention towards the complaint made by the petitioner. It has been further stated that Ld. Arbitrator has failed to comply with procedural law for the service of petitioners. The petitioners had never received any notice either with regard to the appointment of the arbitrator or with regard to the initiation of the Arbitration proceeding. Resultantly, petitioner could neither put his objection to the appointment of the Arbitrator nor could participate in the arbitration proceedings. Even further more, the Ld. Arbitrator further failed to serve the petitioner by way of substituted service. Petitioners have not been served as per law and Ld. Arbitrator has further committed illegality in passing the award without appreciating the fact that petitioners have already paid a substantial amount to the respondent/claimant. It has been further submitted that impugned award has been got passed by the respondent/claimant by playing fraud and fraud vitiate Arb. No. 238/10 Page no. 6 of 26 each and every proceedings, so this award is liable to be set aside. It has been further alleged that petitioner has not got the right of hearing which is the basic principle of common law that no party should be condemned unheard. So this impugned award is liable to be set aside.

4. It is further submitted that award passed by the Ld. Arbitrator can be set aside if there is illegality on the face of award and if the award is against the public policy or contrary to justice or morality.

5. It is further submitted that in the document supplied to the petitioner regarding their account maintained by the respondent, rate of interest has been provided at the rate of @ 10.63% whereas the Ld. Sole Arbitrator has awarded the interest @ of 16% pendente lite interest and thereafter interest has been provided @ 18% from the date of passing the award till its realisation. So findings as recorded by the Ld. Arbitrator Arb. No. 238/10 Page no. 7 of 26 so far as the grant of rate of interest is contrary to the statutory provision of the Act and award is liable to be set aside.

6. Notice of this sent and appearance was caused by the respondent and filed a detailed and comprehensive reply to the averments and facts stated in the aforesaid petition. It is pleaded at the instance of the respondent that petition filed by the petitioner merits dismissal as it does not conform to Section 34 of the Act. Respondent have gone on merits imputing the averments made in the award. It is stated that petitioners have misstated and manipulated the facts. It is further contended that as per loan agreement the Ld. Arbitrator was appointed and due intimation was sent regarding the appointment of the arbitrator but the respondent failed to appear before the Ld. Arbitrator and he was proceeded ex­parte and thereafter, an ex­parte award was passed and copy of the same was sent to the petitioner/non­claimant in terms of the Section 31(5) of the Arb. No. 238/10 Page no. 8 of 26 Act. It has been further contended that petitioners were served as per law as the acknowledgment of the service of the arbitral proceeding has already on record of the arbitral proceedings. So the petitioners were served as per law and they were rightly proceeded ex­parte, there is no lacuna in the service of the petitioners. It has been further contended that there is no fraud played by the respondent/claimant for getting the award in his favour. The Ld. Arbitrator has passed the award after following the due procedure of law and after appreciating the evidence impugned award has been passed. It has been further submitted that principle of natural justice are basic foundation of the law that no party should be condemned unheard but the petitioner himself failed to appear before the Ld. Arbitrator. Therefore, there is no question of non­observance of principles of natural justice in the award passed by the Ld. Arbitrator.

7. It has been further contended that in the loan agreement Arb. No. 238/10 Page no. 9 of 26 the rate of interest was provided for which was agreed upon between the parties @ 18% but the Ld. Arbitrator has granted pendente lite interest @ 16% which may be granted U/s 34 of the Act. So there is no illegality in award passed by the Ld. Sole Arbitrator.

8. Before considering merits of the petition, it would be appropriate to analyze the scope of intervention of the courts, in the process of alternative dispute resolution mechanism coined and adopted by the parties. It is a settled proposition of law that the courts established by law are formal disputes resolution mechanism, should minimum interfere in the alternative disputes/resolution mechanism adopted by the parties. It had been observed by the Apex Court in catena of judgments that the courts cannot examine an awards passed by the Ld. Arbitrator, as a Court of Appeal and thus, cannot go into re­appraise the documents, pleadings and evidence led Arb. No. 238/10 Page no. 10 of 26 before the Ld. Arbitrator. Since, the arbitration is a dispute resolution mechanism evolved by the parties at the time of entering into a contract, the sanctity has to be given to it. The perusal of scheme of the Act also endorses the aforesaid view being expressed by the Courts, reserving themselves with a mandate of minimum interference to the arbitral proceedings and awards, as the Forum was elected by the parties. Section 5 of the Act specifically envisages the scope of judicial intervention during the process of arbitral proceedings, which reads as under:­ "5. Extent of judicial intervention ­ Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."

9. Part 1 of the Act deals with arbitration and narrates scope in which the court could intervene. Section 8 envisages an eventuality, when a suit is brought before the judicial authority, which is a subject matter of arbitration agreement, on Arb. No. 238/10 Page no. 11 of 26 application by one of the parties before submitting his first statement on substance of dispute, the judicial authority may refer the parties for arbitration. Likewise, the court may pass interim orders/directions to save corpus which is a subject matter of arbitration agreement between the parties or may pass such interim directions as envisaged in Section 9 of the Act. Likewise, in event, the parties fail to appoint arbitrator in terms of agreement, the Chief Justice or any person or institution designated by him to take necessary measures for securing appointment of arbitrator. Further perusal of scheme of the Act spells out the procedure seeking setting aside of awards under Section 34 of the Act, where the judicial authority/courts can interfere/intervene in awards passed by the Ld. Arbitrator, leaving aside the grounds arising under Section 13(5) and 16(6) which de hors Section 34 of the Act, the grounds for setting aside of awards set out in Section 34 of the Arb. No. 238/10 Page no. 12 of 26 Act are exhaustive. Careful perusal of Sub­Clause 2 of Section 34 of the Act which opens with words "An arbitral awards may be set aside by the court only if (emphasis supplied). The phrase "only if" in Section 34 (2) of the Act manifests the legislative intent, which restricted the grounds for setting aside the awards passed by the Ld. Arbitrator only in circumstances narrated therein. The aforesaid view is fortified in view of the view expressed by their Lordships in Government of NCT Vs. Khem Chand reported at 2003 (2) RAJ 437 (DEL), where it was observed that leaving aside the grounds arising under Section 13(5) and 16(6), which de hors Section 34, the ground for setting aside awards set out in Section 34 are exhaustive. It was observed by their Lordships in Union of India Vs. Bharat Builders 2002 (2) RAJ 576 (DEL) where their Lordships scribed the scope of the jurisdiction of the Court as under:­

(a) unless party succeeds in establishing any ingredient of Section 34 does not entitle subvert Arb. No. 238/10 Page no. 13 of 26 of awards.

(b) Court does not sit in Appeal nor required to re­ appreciate or reassess or revaluate the documents/material placed before Ld. Arbitrator.

(c) Even if erroneous view has been taken by the Arbitrator in respect of finding of fact of ingredient of term and clauses of Agreement, the Court should be reluctant to interfere until or unless perversity or non­applicant of mind or error is writ large on the fact of awards.

The Hon'ble Supreme Court further analyzed in detail the scope of powers of the Courts under Section 34 of the Act, in case title ONGC Vs,, Saw Pipes Limited reported at AIR 2003 (SC) 2629 as under:­ "(1) The court can set aside the arbitral awards under S.34(2) of the Act if 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, 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 awards deals with a dispute not contemplated by or not falling within the terms of the submissions to arbitration, or it contains Arb. No. 238/10 Page no. 14 of 26 decisions on matters beyond the scope of the submission to arbitration.

(2) The Court may set aside the awards :­

(i) (a) if the composition of the arbitral Tribunal was not in accordance with the agreement of the parties,

(b) failing such agreement, the composition of the arbitral Tribunal was not in accordance with Part 1 of the Act.

(3) If the arbitral procedure was not in accordance with:­

(a) The agreement of the parties, or

(b) failing such agreement, the arbitral procedure was not in accordance with Part 1 of the Act. However, exception for setting aside the awards on the ground of composition of arbitral Tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part 1 of the Act from which parties can not derogate.

(c) If the awards passed by the arbitral Tribunal is in contravention of provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.

(4) The awards could be set aside if it is against the public policy of India, that is to say, if it is contrary to

(a) Fundamental policy of India law;

(b) the interest of India; or

(c) justice or morality; or

(d) if it is patently illegal.

(4) It could be challenged:­

(a)As provided under S. 13(5); and S. 16(6) of the Act.

10. From the aforesaid analysis of law made by the Hon'ble Arb. No. 238/10 Page no. 15 of 26 Courts, it is incumbent duty of the petitioner to bring his case within the four corners of Section 34 (2) of the Act so as to persuade the court to set aside the award. In the back drop of this discussion, let us examine the grounds taken by the petitioner to get the award set aside.

11. The first contention of the petitioner is that they have not been served by the Ld. Arbitrator before proceeding ex­parte. Petitioner has contended that Ld. Sole Arbitrator has passed ex­parte award against the petitioner without following due process provided for the service of the petitioner/respondent including substituted service, so award is per se illegal, but this contention raised by the petitioner does not hold any water as the acknowledgment duly signed by the petitioners is available in arbitral record. So when the acknowledgment duly signed by the petitioner is on record, it can not be said that petitioner have not been served as per law so this contention is hereby Arb. No. 238/10 Page no. 16 of 26 rejected.

12. The next contention of the petitioner is with regard to the fraud being played upon by the respondent/claimant for getting the award passed against the petitioner but there is no ground/objections raised in the petition by which specific instances have been pointed out as to how the respondent/claimant has played fraud upon the petitioner and impugned award has been passed against them by playing fraud. The award has been passed by the Ld. Arbitrator by appreciating the evidence on record and the petitioner was proceeded ex­parte as per law. In the absence of any ground to substantiate the allegation of fraud, this contention of the petitioner also requires rejection.

13. Now coming to the next contention raised by the petitioner is that principles of natural justice have not been followed by the Ld. Arbitrator while passing the ex­parte award.

Arb. No. 238/10 Page no. 17 of 26 The petitioners have been served with notice of initiation of arbitral proceedings as acknowledgment dated 12.07.2009 has been duly received and signed by the petitioners has been placed on record. But the petitioner failed to appear before the Ld. Arbitrator so there is no violation of principle of natural justice as the petitioners themselves failed to appear before the Ld. Arbitrator in the proceedings filed by the respondent/claimant before the Ld. Arbitrator.

14. The next contention of the petitioner is that award was suffered from the illegality. This contention of the petitioner has been vehemently opposed by the respondent/claimant that no such illegality has been committed by the Ld. Arbitrator during the arbitral proceedings. It is also settled law that illegality must go to root of the matter and if illegality is of trivial nature it can not be held that award is against the public policy. Ld. counsel for the respondent has placed reliance upon case titled Arb. No. 238/10 Page no. 18 of 26 as S.R.P. Industries Ltd. Vs. Gea Process Engg. Ltd., 2009 (109) DRJ 186 (DB).

15. In the judgment titled, Govt. of N.C.T. Delhi Vs. Khem Chand, 2003(2) RAJ 437, it was observed by relying upon AIR 1963 SC 677 that a Court should approach an award to support it if it is reasonable, possible rather than to dispute it, by calling it illegal. The law in this regard as it existed prior to enachtment of Arbitration and Conciliation Act, 1996 still holds the field. It was further observed that the jurisdiction of the Court when called upon to decide the objections raised by a party against an arbitral award is limited, as expressly indicated in the Arbitration and Conciliation Act, 1996. The court has no jurisdiction to sit in appeal and examine the correctness of the award on merits with reference to the material produced before the arbitrator, it can not sit in appeal over the view of the arbitral Award.

Arb. No. 238/10 Page no. 19 of 26

16. Similar view was taken in India Tourism and Development Corporation Vs. T.P. Sharma, 2003(3) Recent Arbitration Judgments 360, wherein it was held that findings of the arbitrator on the factual matrix need not to be interfered with as the Court does not sit in appeal and the Courts are also refrained from re­appreciating or reevaluating the evidence or the material before the arbitrator unless perversity is with respect to large on the face of the award or the award suffers from the vice of the jurisdictional error, sanctity of award should always be maintained.

17. All the above said objection is the matter of facts raised against the award in question more akin to those contemplated U/s 30 and 33 of the Arbitration Act, than the ones under the new Act. The scope of Section 34 of the Act which provides for setting aside of the award is far less than U/s 30 and 33 of the old Act, as observed by Hon'ble High Court in numbers of Arb. No. 238/10 Page no. 20 of 26 judgment. The ground for setting aside an arbitral award stated in S. 34 of the Act are exhaustive and Court can set aside an arbitral award only if one of the ground mentioned therein is found.

18. Now coming to the last objection of the petitioner that the document supplied to the petitioner regarding their account maintained by the respondent, rate of interest has been provided 10.63% whereas the Ld. Sole Arbitrator has awarded the interest @ of 16% pendente lite and future interest at the rate of @ 18% which is not sustainable in the eyes of law and the impugned award is illegal and liable to be set aside. Section 31(7) of Arbitration and Conciliation Act, 1996 itself provides for grant of interest. It will be in fitness of things to reproduce the relevant provisions of law in this regard:­ "(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for Arb. No. 238/10 Page no. 21 of 26 which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per cent per annum from the date of the award to the date of payment."

19. A perusal of this Sub­clause goes to show that the Act itself empower's the arbitrator to award interest to the extent of 18% per annum. In Indian Tourism Development Corporation Ltd. Vs. Buddiraja Electrical 2003(2) RAJ 216 (Delhi) also, the interest was awarded @ 18% per annum and the same was upheld by Hon'ble High Court. In Bhagwati Oxygen Ltd. Vs. Hindustan Copper Ltd. AIR 2005 SC 2071 the awarding of interest @ 18% per annum was upheld.

20. The judgment titled Secretary Irrigation Department, Govt. of Orissa and Others etc. Vs. G.C. Roy 1992(1) Arb. No. 238/10 Page no. 22 of 26 Arbitration Law Reporter, 145 it has been held after discussing the law in detail as follows:

" an arbitrator has jurisdiction to award pendente lite interest where the arbitration agreement so provides but no pendente lite interest can be allowed by the arbitrator if the agreement expressly provides that no pendente lite interest should be allowed. Where there is no express prohibition, such power must be inferred."

21. Para 44 of this judgment titled Secretary Irrigation Department, Govt. of Orissa and Others etc Vs. G.C. Roy (Supra) it has been held that:­ "Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (alongwith the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes or refer the dispute as to interest as such­to the arbitrator he shall have the power to award interest.

Arb. No. 238/10 Page no. 23 of 26 This does not mean that it in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of the case. Keeping the ends of justice in view."

22. Bhagwati Oxygen Ltd. Vs. Hindustan Copper Ltd. (Supra) has discussed with regard to grant of interest at three different stages i.e. pre­reference, pendente lite and post award interest. The law laid down in Secretary Irrigation Department Govt. of Orissa & Others Vs. G.C. Roy (Supra) has been discussed in para­36 of the judgment titled Bhagwati Oxygen Ltd. Vs. Hindustan Copper Ltd. (Supra). It has been discussed regarding non applicability of Section 34 of the Code of Civil Procedure in the following lines:­ "Now Section 34 of the Code of Civil Procedure has no application to arbitration proceedings since Arbitration can not be said to be a 'court' within the meaning of the Code. But an Arbitration has power and jurisdiction to grant interest for all the three stages provided the rate of interest is Arb. No. 238/10 Page no. 24 of 26 reasonable."

23. So far grant of pendente lite interest is concerned, in para­38 of this judgment titiled Bhagwati Oxygen Ltd. Vs. Hindustan Copper Ltd. (supra) the grant of pendente lite interest has been upheld.

24. In judgment titled Delhi Development Authority Vs. S.S. Jetley 2001 (1) Arbitration Law Reporter 289 (Delhi) (DB) the award of pre suit and pendete lite interest has been upheld.

25. In view of the various authoritative pronouncements discussed above it is clear that pre reference interest and pendente lite interest can be awarded by the arbitrator.

26. The rest of the objections raised by the petitioner relates to the assessment of award on the basis of re­appraisal of the evidence, their quality and evidentiary value of the evidence adduced by the parties during the course of arbitral proceedings which does not fall in domain of this Court while Arb. No. 238/10 Page no. 25 of 26 considering objections under Section 34 of the Act as this Court is not vested with powers to assess the awards as a Court of First Appeal.

27. From the above discussions, I am of the conclusion that the objections raised by the petitioner against the award passed in the above said case by the Ld. Arbitrator are devoid of merits. Therefore, this petition is hereby dismissed. No order as to cost. File be consigned to Record Room. Announced in the Open Court (VIJAY KUMAR DAHIYA) On this 28.04.2011. ADJ­II : ROHINI : DELHI Arb. No. 238/10 Page no. 26 of 26 Arb. No. 238/10 28.04.2011 Present:­ Ld. counsel for the parties.

Vide separate order, present appeal is hereby dismissed. No order as to cost. File be consigned to record room.

(VIJAY KUMAR DAHIYA) ADJ­II(NW):ROHINI:DELHI.

28.04.2011. 

Arb. No. 238/10                                                                    Page no. 27 of 26