IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:23.06.2010 CORAM: THE HON'BLE MR.JUSTICE P.JYOTHIMANI ORIGINAL PETITION NO.428 OF 2009 Mulchand B Jain Tirupati Emporium Mumbai-Goa Road, Mangoan Raigad, Maharastra State .. Petitioner vs. 1.M/s.Indus Ind Bank Ltd., formerly known as Ashok Leyland Finance Ltd., rep. By V.Govindarajan Sudarsan Building No.86, Chamiers Road, Chennai 600 018. 2.S.K.Srinivasan Arbitrator Old No.16 Eighth Street Dr.Radhakrishnan Road,Mylapore Chennai 600 004. 3.Shailesh Arvind Patel at Rampur, Tq.Dholaka, Dist. Ahmedabad. .. Respondents Petition filed under Section 34 of the Arbitration and Conciliation Act,1996 to set aside the exparte award dated 05.03.2005. For petitioner : Mr.K.K.Sanchetti For respondents: Mr.S.R.Sundar for R.1 .. ORDER This petition is filed under section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award passed by the Sole Arbitrator dated 5.3.2005, directing the petitioner herein, who was the second respondent before the Arbitrator to pay jointly with the first respondent therein an amount of Rs.1,80,719/- apart from the arbitration fees. 2. The award which came to be passed exparte against the petitioner and another is challenged by the petitioner, who is the guarantor under the agreement mainly on the ground that (i) there is no notice of appointment of arbitrator and the award itself is silent about such notice and communication to the petitioner; (ii) the petitioner has not signed as guarantor under the original contract in respect of which the petitioner was never involved; (iii) the petitioner shifted his place to Mangaon even in 1989 and while so, in the arbitration proceedings which started in the year 2002, the old address was stated; and (iv) the signature of the petitioner in the alleged contract and some of the signatures put up by him before the authorities like, Income-tax Department would show that on the face of it, the petitioner cannot be termed as a party to the original contract as guarantor. Therefore, it is the submission of the learned counsel for the petitioner that the award on the face of it is liable to be set aside since the same is in violation of section 21 of the Arbitration and Conciliation Act,1996 (in short, "the Act") apart from section 34(2)(iii) of the said Act. It is his contention that even the arbitration award duly signed by the Arbitrator has not been served on the petitioner and therefore, the award is liable to be set aside under section 31(5) of the Act. 3. On the other hand, it is the contention of the learned counsel for the first respondent, who is the claimant before the Arbitrator, that in fact, the first respondent terminated the contract and appointed the Arbitrator as per the terms of contract. His contention is that notice was sent by the arbitrator. It is also his contention that even if it is found that there has been some defect on the part of the Arbitrator in following certain provisions, the Original Petition can be directed to be kept pending and the matter can be referred to the Arbitrator once again under section 34(4) of the Act. 4. The Arbitrator has sent the entire file relates to arbitration proceedings maintained by him. A reference to the award which is no doubt an exparte award shows that the first respondent was the claimant in the Original Petition, which was formerly known as M/s.Ashok Leyland Finance Limited, carrying on finance business. It entered a hire purchase agreement dated 14.5.2002 with the third respondent in the Original Petition and the petitioner, in respect of a vehicle taken by the third respondent. It is stated that in the agreement, the petitioner signed as guarantor. Since there was failure on the part of the third respondent in making payment as per the terms of the hire purchase agreement, by invoking the arbitration clause, the first respondent made a claim before the Arbitrator to the extent of Rs.1,80,719/- jointly against the petitioner and the third respondent. 5. Even though the arbitration award states that notice sent by the Arbitrator to the third respondent, who is the principal debtor was served and acknowledged, it is stated that the notice sent to the petitioner was returned with an endorsement in Gujarati language. It is also stated that the proceedings of the Arbitrator dated 27.11.2004 was sent to both the respondents therein and the same was returned and the Arbitrator also directed for paper publication in vernacular newspaper and publication was effected by the first respondent herein in a Gujarati daily dated 1.2.2005 and thereafter, the respondent therein were set ex parte. In those circumstances, as per section 25 (c) of the Act, the Arbitrator proceeded with the enquiry and passed the award. 6. A copy of the award is stated to have been communicated to the petitioner only after the counsel for the petitioner herein has written to the Arbitrator. It is true that in the newspaper publication effected by the first respondent herein, the address of the petitioner is shown as "Mr.Mulchand B.Jain, Tripuda Society, Kalikund, P.O. Mattipur, Tal: Dholka, Ahmedabad." while the claim of the petitioner is that he has shifted his residence to Mangaon much earlier. The proceedings of the Arbitrator dated 27.11.2004 sent to the petitioner to Ahmedabad address was returned with an endorsement left as seen in page 75 of the file. Like that, the subsequent proceedings of the Arbitrator dated 11.5.2004 addressed to the Ahmedabad address of the petitioner was also returned with an endorsement 'left'. The letter of the Arbitrator dated 21.4.2004 which was returned is of course in Gujarati language. A reference to page 90 of the file shows that the first respondent terminated and initiated arbitration proceedings as per the letter dated 7.4.2004. It is no doubt true that the letter of termination and the appointment of Arbitrator was addressed to the third respondent and the petitioner to their Ahmedabad address, but there is no evidence to show that the first respondent has in fact served the said notice on the petitioner terminating the contract and initiating the arbitration proceedings by appointing the Arbitrator. 7. Section 21 of the Arbitration and Conciliation Act, 1996 which is as follows: " 21. 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." makes it abundantly clear that the commencement of arbitration proceedings is possible only after the respondents therein received the request for reference to arbitration. 8. Section 34 of the Act relates to the application for setting aside the arbitral award and section 34(2) reads as follows: " 34. Application for setting aside arbitral award.- (1)xxx (2)An arbitral award may be set aside by the Court only if- (a) the party making the application furnishes proof that- (i)a party was under some incapacity; or (ii)the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii)the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv)the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v)the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that- (i)the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii)the arbitral award is in conflict with the public policy of India. Explanation.- Without prejudice to the generality of sub-clause(ii) of clause(b), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 of Section 81." 9. While explaining the circumstances under which the award can be set aside, section 34(2)(a)(iii) makes it clear that if it is proved that the party who makes application under section 34 of the Act to set aside the award was not given proper notice of appointment of Arbitrator, the award can be set aside. The award can also be set aside on other grounds, viz., (i) proper notice of arbitral proceedings are not given; and (ii) where a party was unable to present his case due to various reasons. Therefore, a combined reading of section 21 and section 34(2)(a)(iii) has to necessarily result in a valid ground for setting aside the award if notice of termination or appointment of Arbitrator has not been served as per the said provisions of the Act. On the violation of the requirement of the provision which enshrines the principle of natural justice, viz., hearing of other side, there is no difficulty to conclude that the arbitration award is liable to be set aside on that ground alone. Further, the arbitral award is also silent to the effect that the first respondent has invoked the arbitration clause by terminating the contract and appointing the Arbitrator. 10. Now, coming to the contention of the learned counsel for the first respondent with regard to application of section 34(4) of the Act for referring the matter afresh to the Arbitrator for fresh decision, it is useful to refer to the said provision, viz., section 34(4) which is as follows: " 34. Application for setting aside the arbitral award.- (1)to (3) xxxx (4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award." 11. In this regard, one has to appreciate as to the useful purpose which would be served in referring or otherwise remanding the matter back to the Arbitrator for a fresh decision. First of all, it is undisputable that as far as the third respondent/principal debtor is concerned, he was served and award passed against him and in any event there is no dispute raised by the third respondent/principal debtor in this regard. Therefore, it is not as if the first respondent is deprived of executing the award against the principal debtor. As far as the petitioner is concerned, he has raised an important issue that he has not signed the original contract as guarantor. In that regard, he has produced the PAN card of the Income-tax Department containing his signature. A reference to the said signature put by him in Gujarati language and the signature of the petitioner in the hire purchase agreement, Xerox copy of which is available in pages 92 to 98 of the file of the Arbitrator shows that there is no semblance of relationship between the said signatures. Further, the signature of the petitioner in the postal acknowledgment card stated to have been signed by the petitioner which is found in page 52 of the file of the Arbitrator also does not in any way resemble to the signature of the petitioner in the hire purchase agreement, on comparison, which does not require any reference to experts for the purpose of identification. 12. In any event, in the absence of the basic requirement of communication of such termination of contract and appointment of Arbitrator having been made to the petitioner, as it is required under section 21 of the Act, I am of the considered view that no useful purpose would be served by referring the matter to the Arbitrator again based on the difference in the signatures alone as, in my view, the basic illegality in violation of section 21 of the Act cannot be rectified by the parties. 13. The facts of the judgment in Harish Chand Gupta & Another v. Ashok Leyland Finance (A Division of IndusInd Bank Ltd.) Registered Office, Chennai and another [CDJ 2010 MHC 2638] which has been referred to by the learned counsel for the first respondent are not similar to the facts of the present case. That was a case where the petitioner therein received notice and that was not a case of notice of termination of contract and appointment of arbitrator under section 21 of the Act. In such view of the matter, looking the matter in any angle, I am of the considered view that the arbitration award cannot be sustained in law. Accordingly, the award stands set aside in so far as it relates to the petitioner and the O.P. stands allowed. No costs. Kh 23.06.2010 P.JYOTHIMANI,J. P.D.Order in O.P.No.428 of 2009 Dated:23.06.2010