Page No. 1/19 IN THE COURT OF MS. SUJATA KOHLI:ADDITIONAL DISTRICT JUDGE: WEST DISTRICT:TIS HAZARI COURTS:DELHI ARBT. No. 23/14/12 SANDEEP SURI S/o LATE SH. M.L. SURI, R/o G137, SECOND FLOOR, PUSHKAR ENCLAVE, PASCHIM VIHAR, NEW DELHI110063. PETITIONER VERSUS 1. M/s RELIGARE FINVEST LIMITED, (A NON BANKING FINANCE COMPANY INFORPORATED UNDER THE COMPANIES ACT, 1956), REGISTERED OFFICE AT: 19, NEHRU PLACE, NEW DELHI19. THROUGH ITS DULY CONSTITUTED ATTORNEY SH. MUKESH KUMAR CHAUDHARY. 2. SH. SATISH KUMAR, (ARBITRATOR), CHAMBER No. 95, CIVIL SIDE, TIS HAZARI COURTS, DELHI54. RESPONDENTS Page No. 2/19 DATE OF FILING OF THE PETITION : 28.10.2013 DATE OF RESERVATION OF ORDER : 26.05.2014 DATE OF DECISION/JUDGMENT : 31.05.2014 O R D E R:
The petitioner/objector is mainly aggrieved about the amount which has been awarded against him without affording an opportunity to be heard. The petitioner/objector admitted the fact that he had taken a loan from the respondent for a sum of Rs. 4,81,000/, but he claims that he already paid 14 monthly installments of Rs. 17,389/, each, and thus, a total sum of Rs. 2,43,446/ had already paid, leaving behind the balance amount payable as Rs. 2,37,554/.
2. The petitioner/objector, on these admitted facts, further states that he had sought extension of time from the respondent to continue to pay the balance installments, due to some unavoidable circumstances, but respondent, instead of considering his request, without even the knowledge of the petitioner/objector, appointed an Arbitrator, and got the proceedings commenced without even serving a notice upon the petitioner/objector, and the Arbitrator, ultimately, passed an exparte award in the sum of Rs. 3,64,335/ alongwith interest @ 18% p.a.
3. The main ground of challenging the said exparte award dated 11.01.2011, is that the petitioner/objector was not served with any notice, and secondly, the Arbitrator has not gone by a proper legal evidence, in as much as, only copies of the documents were exhibited, with the originals never produced on the record before the Arbitrator, and as such, the copies were inadmissible in evidence.
Even the statement of account as filed by the respondent before the Arbitrator was not certified by any Company Secretary, and the statement of account was clearly manipulated by the respondent towards its benefit.
4. Since the petitioner/objector was not even given an opportunity to be heard, the said exparte award dated 11.01.2011, as passed, is illegal and against the principles of natural justice. It has even been pointed out in this objection petition that respondent had not even filed any statement of claim before the Arbitrator. The interest as claimed was exorbitant being a 30% compoundable interest and thus, not in according with the norms laiddown by the Reserve Bank of India, with respect to interest.
5. In their reply as filed by the respondent, certain preliminary objections were raised, firstly that the objection petition as filed, was beyond time, and thus, could not be entertained, and the award having been passed on 11.01.2011, delivered to the petitioner/objector on 17.01.2011, while the objection petition was filed only on 18.03.2012, and even otherwise, the petitioner/objector has failed to raise any such ground to invoke interference by a Civil Court in the well reasoned award.
6. It has been also averred in the reply on merits that the allegation of the petitioner/objector that Arbitrator had been appointed without his consent and knowledge, is wrong, in as much as, reference has been had to the loan application form and to the loan agreement itself, duly executed by the petitioner/objector, wherein there was an arbitration clause.
7. It has even been denied that petitioner/objector has no knowledge about the arbitration proceedings. According to the respondent, notices of appearance had been issued on 13.03.2010, and again on 26.04.2010 by Registered Post, and the petitioner/objector failed to appear deliberately, and he was proceeded exparte.
8. Further, it is also denied by the respondent that they had not mentioned about the payment made by the petitioner/objector during the proceedings before the Arbitrator.
9. The respondent maintains that the petitioner/objector was very well aware about the arbitration proceedings, and about passing of the award, much prior to 22.12.2011, as against what has been alleged by him.
10. The petitioner/objector filed a rejoinder denying the version of the respondent and reiterating his own version being correct.
11. Ld. Counsel for parties addressed their arguments, and during the course of which, Ld. Counsel for petitioner/objector has submitted that petitioner/objector, on record, admits the liability of Rs. 2,42,000/ to the respondent, on the merits.
12. During the course of arguments, respondent was directed to produce a duly certified copy of statement of account i.e. one duly certified by the Company Secretary as per the relevant provisions of [ACT], but same was not done in spite of repeated directions.
13. Apart from the oral arguments, Ld. Counsel for the petitioner/objector also filed written submissions, separately.
14. As far as the question of the award being timebarred is concerned, the application U/[SECTION] of [ACT] was never taken up separately, but during the course of the main arguments itself, reference was had to the different dates in their records. The impugned award was passed on 11.01.2011, while the objection petition has been filed on 28.03.2012.
15. On the face of it, the petition was barred by time, but in the application for condonation of delay, it has been stated that petitioner/objector came to know about the passing of the impugned award only on 22.12.2011, whereafter, he immediately filed the objections i.e. in the execution petition before this Court itself, and even petitioner/objector, obtained certified copies of the documents, which were available in the file of the execution. Thus, he explained the delay.
16. According to him, there is only a five days delay as time was consumed to obtain the certified copies etc.
17. The execution file being No. 51/2011, was also requisitioned, and same was showing that the warrant of attachment, which had been directed to be issued vide [SECTION], were returnable for 16.02.2012, and in between, on 23.12.2011, an application U/[SECTION] [ACT] had been filed on behalf of the JD.
18. Report of the Bailiff dated 19.12.2011 also shows that it is the first time on 19.12.2011 itself that he had gone for execution to the spot alongwith AR of the DH for the purpose of execution.
19. As regards the proceedings contained in the original arbitration record, which shows that first time notice had been issued to the petitioner/objector by Registered AD Post for 14.05.2010, but by 154.05.2010, neither the envelope nor the AD Card had been received back, and going by a postal receipt on the record, and going by the submissions of the Authorized Representative of the Claimant/Respondent that this is the last known address, Ld. Arbitrator raised a presumption U/[SECTION] of the [ACT], and deemed the petitioner/objector to be served, and in view of his absence, the Ld. Arbitrator proceeded exparte against him.
20. At this stage, the postal receipt in question, however, the first postal receipt on the record pasted on the notice of the arbitration proceedings, though the notice is dated 13.03.2010, the postal receipt is showing the date of dispatch as 16.03.2010, but it is quite significant that all the postal receipt in question mentions only the name of the petitioner/objector as 'Sandeep' and 'New Delhi', with no other address particulars stated thereon, to show as to where the material was actually dispatched.
21. It is even more surprising that though in the proceedings, there is no mention of any "final notice of arbitration proceedings" to have been sent on 26.04.2010, but there is a copy of such a notice lying on the arbitral record alongwith a postal receipt, however, again there is no address mentioned of the addressee whatsoever, so that the presumption under [ACT] may be raised to the effect that the notice was actually dispatched to the addressee, and the addressee could be deemed to be served. In the absence of the address on the postal receipt, no presumption under [ACT], could have been raised.
22. Furthermore, the ordersheets are rendered in contradiction to the notices on record. The only date on which a notice was directed to be issued the first time, was 02.14.2010, and returnable for 14.05.2010, and on 14.05.2010, the petitioner/objector was proceeded exparte.
23. In between, there was no further direction for issuing any other notice or 'final notice' as like a copy of which lying on record which is showing to have been issued on 01.05.2010. In fact, when there is nothing in the proceeding sheet, and the date fixed was yet to reach, where was the occasion to send another 'so called' final notice, in between on 01.05.2010.
24. A second notice could have been dispatched only after 14.05.2010, when the first notice had not returned or returned with a report, either way. As such, the proceedings themselves are not in harmony with the copies of the 'so called' notices on the record.
25. Even otherwise, the Arbitrator acted in haste, when he raised a presumption, and even proceeded exparte on the very first date, on which, the notice was returnable.
26. Secondly, with an object in mind, even if it is found that a party refuses a notice or avoids it, a notice is normally got affixed at the given address, but without having taken any such caution, not even having looked at the postal receipt, as to whether, it even contained any address or not, straightaway, a presumption was drawn U/[SECTION] of the [ACT], against the petitioner/objector.
27. Thus, the very process followed by the Arbitrator was vitiated being violative of principles of natural justice, and such an award after wrongly proceeded exparte against the petitioner/objector, visibly in a haste, amounts to condemning the petitioner/objector unheard, and going by that, is against public policy, as discussed at length in the case titled as "[PRECEDENT])" opened the floodgates so far as judicial interference in arbitrations is concerned. The Hon'ble Supreme Court, in Saw Pipes declared that:
"Therefore, in our view, the phrase 'Public Policy of India' used in [SECTION] in context is required to be given a wider meaning However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice the award could be set aside if it is contrary to:
(a) fundamental policy of Indian law;
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy."
"An award would therefore be patently illegal if it violated any statutory provision or a provision of the contract. Hence Courts, while supposedly reviewing the award have started going into the merits and analyzing whether the awards, on merits, violated any statutory provision or the terms of the contract "
26. In [PRECEDENT], the Hon'ble Supreme Court in 3 Judges Bench, (in [CASE NUMBER] dated 18.01.2008, Practical Lawyer) was pleased to hold that the arbitrator committed an error apparent on the face of the record and a legal misconduct in holding that the entire claim was within time and therefore, the claim for Rs.67,64,488/, out of total claim for Rs.95,96,616/ was held to be barred by limitation and the award made in that respect was held liable to be set aside.
"Duty to act fairly is the first and foremost function of an arbitrator. He must act in a fair and reasonable manner to both the parties and in the arbitration hearings he must not show or exhibit favour towards one party more than towards the other and must refrain from doing for one party which he cannot do for the other. Showing undue favours to one party at the cost of the other in matters handled by him would be looked upon with suspicion by the Courts. It was in this context that [ENTITY] J. in the [PRECEDENT] (at page 415) observed that "Mr. had, indeed, been the arbitrator appointed by them on several occasions and was described before me as their first choice arbitrator, language more usually heard in the context of [ENTITY] or Covent Garden market produce than of a well known arbitrator, but the meaning is clear enough."
The position of the arbitration is like that of [ENTITY]'s wife who should be above all suspicion. The Courts have continually held tat rules of natural justice must be followed by the arbitrators including the principles incorporated in the maxim audi alterem partem. Ignorance of the rules of natural justice cannot be defended on the plea that the evidence was inconsequential or had not affected the mind of the arbitrator or was of a trifling nature.
[SECTION] of the [ACT] excludes its application in any arbitration matter which should not at all be taken to mean that he can act in the manner he likes or can act arbitrarily. He must act in accordance with the principles of natural justice. It is now well settled that an arbitrator is not bound by the technical and strict rules of evidence which are founded on fundamental principles of justice and public policy. In proceedings of arbitration, there must be adherence to justice, equity, law and fair play in action. The proceedings must adhere to the principles of natural justice and must be in consonance with practice and procedure which will lead to proper resolution of dispute.
The rule of natural justice requires that parties should be given an opportunity to be heard by the arbitrators, which means whatever material they want to place before the arbitrators should be allowed to be placed. Oil & Natural Gas Commission Ltd.v. New India Civil Erectors Pvt. Ltd., 1996 (Suppl) Arb LR 426 (DB Bom).
Where the arbitrator refuses to consider the contentions of the contractor and refuses permission to produce evidence, inasmuch as directions were not given to the government to produce the record which had been withheld on the ground of privilege, without even indirectly or incidentally mentioning the nature and volume of the record held privileged, it was held that these lacunas are the violations of the principle of natural justice and denial of opportunity to the contractor to press and prove his case. President of India v. Kesar Singh, AIR 1966 J&K 113 :
1966 Kash LJ 287.
In [ENTITY] and [ENTITY]'s Law and Practice of Commercial Arbitration in England, 1982 Ed., p. 261, the following cardinal rules have been suggested for being followed by the arbitral tribunal in order to ensure fairness in conducting arbitration between the litigant parties:
1. Each party must have a full opportunity to present his own case to the tribunal.
2. Each party must be aware of his opponent's case, and must be given a full opportunity to test and rebut it.
3. The parties must be treated alike. Each must have the same opportunity to put forward his own case, and to test that of the opponent.
The above principles (Sr. Nos. 1 and 3) are in consonance with [SECTION] of the Act and the principle stated at Sr. No. 2 conforms to [SECTION] of the Act. The principles of natural justice know of no exclusionary rule dependent on whether it would have made any difference if natural justice had been observed. The nonobservance of natural justice is itself prejudice to any man and proof of prejudice independently of proof of denial of natural justice is unnecessary. It ill comes from a person who has denied justice that the person who has been denied justice is not prejudiced, S.L. Kapur v. Jagmohan, AIR 1981 SC 136:
(1980)4 SCC 379.
An arbitrator would be guilty of misconduct if he is charged with any information having been obtained from one side which was not disclosed to the other. Such an information may be oral or in writing. It is with this aspect in mind that the Legislature provided in [SECTION] of the Act that "All statements, documents or other information supplied to, or applications made to the arbitral tribunal by one party shall be communicated to the other party, and any expert report or evidentiary document on which the arbitral tribunal may rely in making its decision shall be communicated to the parties.
An arbitrator must not be guilty of hearing one party in the absence of the other. The principles of natural justice mandate that the person who is to be prejudiced by the evidence must be given an opportunity to suggest cross examination and to enable him to produce evidence to counter. However, an exception to the rule is that where an arbitrator took evidence at the back of one party, but decided the matter in favour of the absent party [Black vs John Williams & Co., 1924 S.C. (H.L.) 22].
When the arbitrator accepts documents from one party in the absence of the other party, the arbitrator would be guilty of misconducting the proceedings because no arbitrator can accept document from one party at the back of the other. [PRECEDENT].
The thread of natural justice should run through the entire arbitration proceedings and the principles of natural justice require that the person who is to be prejudiced by the evidence ought to be present to hear it taken to suggest crossexamination and to be able to find evidence, if he can, that shall meet and answer it. [PRECEDENT]. During the conduct of a reference the arbitrator required the attendance of a witness whom neither side proposed to call. After this witness had given evidence the proceedings terminated, and the arbitrator said that he required nothing further from either of the parties. Subsequently, however, the plaintiff found the arbitrator closeted with the witness and a special pleader who was acting for the defendants, the three persons being engaged in considering the papers and plans connected with the arbitration. The arbitrator explained that the witness was explaining to him information in connection with the case, by which, however, his opinion would not be biased. Held that, as there had been an opportunity for the mind of the arbitrator to have been biased by information given on behalf of one side without the other having had an opportunity of meeting it, the award eventually made by the arbitrator must be set aside [(1844) 14 L.J.Q.B. 17] The wellsettled rule of law is that an arbitrator misconducts the proceedings if he ignores very material documents to arrive at a just decision to resolve the controversy. Even if the department did not produce those documents before the arbitrator, it was incumbent upon him to get hold of all the relevant documents for arriving at a just decision. In [PRECEDENT], it had been held by the Hon'ble Supreme Court as under:
"Misconduct under [SECTION] has not a connotation of moral lapse. It comprises legal misconduct which is complete if the Arbitrator on the face of the award arrives at an inconsistent conclusion even on his own finding or arrives at a decision by ignoring very material documents which throw abundant light on the controversy to help a just and fair decision.
A Division Bench of the Karnataka High Court in a very recent judgment reported as [PRECEDENT] summarized the principles to be followed by an arbitral tribunal as under:
"The minimum requirements of a proper hearing should include: (i) each party must have notice that the hearing is to take place and of the date, time and place of holding such hearing; (ii) each party must have a reasonable opportunity to be present at the hearing along with his witnesses and legal advisers, if any, if allowed; (iii) each party must have an opportunity to be present throughout the hearing; (iv) each party must have a reasonable opportunity to present statements, documents, evidence and arguments in support of his own case; (v) each party must be supplied with the statements, documents and evidence adduced by the other side; (vi) each party must have a reasonable opportunity to crossexamine his opponent's witnesses and reply to the arguments advanced in support of his opponent's case. It is expected of an arbitral tribunal that it should ensure that the date of the hearing is not so close that the case cannot be properly prepared. Equally, an arbitral tribunal, while fixing the date of hearing, should try to accommodate any party who is placed in difficulty by his absence due to unavoidable circumstances such as illness or compelling engagements of himself elsewhere etc. Each party is also entitled to know any statements, documents, evidence or information collected by the arbitral tribunal itself which are adverse to his interest, if they are not contested. The arbitral tribunal is neither to hear evidence nor arguments of one party in the absence of the other party, unless despite opportunity, the other party chooses to remain absent. So also, the arbitral tribunal is not to hear evidence in the absence of both the parties unless both the parties choose to remain absent despite proper notice. Each party to arbitration reference is entitled to advance notice of any hearing and of any meeting of the arbitral tribunal as provided under [SECTION] of the Act".
28. "The Act provides that if the arbitral award is in conflict with the public policy of India it can be set aside. The term "public policy" has not been defined in the Act. A simple attempt to describe it is contained in the Legal glossary of the Ministry of Law, Justice and Company Affairs, Government of India, namely that public policy is "a set of principles in accordance with which communities need to be regulated to achieve the good of the entire community or public". Clearly, the term public policy is very open ended, depending on some socio cultural notions prevailing in the society and impossible to straightjacket. It is not possible to classify the elementary inclusive and exclusive distinctiveness of public policy. In England, public policy is interpreted to mean firstly, anything which does not go against the fundamental conceptions and morality of the English system, secondly which does not prejudices the interests of the country or its relations with foreign countries and lastly, which is not against the English conception of human liberty and freedom of action. Thus we could see that there are distinctive and limited heads of public policy in England."
29. Apart from the aspect of nonservice of petitioner/objector, on merit as well, the entire evidence, as led, by the claimant/respondent based on the documentary evidence, mainly, does not reflect that originals of any of these photocopy documents had been even produced or not by the respondent and to be seen and returned by the Arbitrator. Neither there is any tendering statement, which can throw light on this aspect, nor even the impugned award itself mentions anywhere that the original documents were even produced before him.
30. Even otherwise, the statement of the loan account i.e. on record, has not even been duly certified, firstly as per [ACT] by a Company Secretary, or in fact, by any person whatsoever, and nor it has been accompanied by any certificate issued U/[SECTION] of [ACT], as required in respect of electronic evidence/computerized extracts.
31. No doubt, the petitioner/objector himself has partially admitted his liability i.e. only to the extent of Rs. 2,37,554/, but the Arbitrator has awarded against him an amount as claimed by the claimant i.e. Rs. 3,64,335/.
32. In the circumstances, keeping the admission of partial liability, the petitioner/objector is directed to pay up the amount that he admits to be liable to pay, on his own admissions, and thereafter, for the remaining amount, the ex parte award in question, does not hold good for the reasons already discussed, and has to be setaside.
33. As such, the objection petition stands allowed, and impugned exparte award dated 11.01.2011 is hereby setaside, howver, the petitioner/objector is directed to pay up the admitted amount i.e. Rs. 2,37,554/, to the claimant/respondent, while, liberty is open to the claimant to get an Arbitrator appointed afresh in accordance with the Act, to get the remaining liability decided by following the due process of law and giving full opportunity to the petitioner/objector to be heard.
File be cosigned to Record Room.
ANNOUNCED IN THE OEPN COURT (SUJATA KOHLI) st TODAY i.e. ON 31 MAY, 2014 Additional District Judge (West) THC/Delhi:31.05.2014