IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 22.03.2011 CORAM THE HON'BLE MRS. JUSTICE R.BANUMATHI and THE HON'BLE MR. JUSTICE V.PERIA KARUPPIAH O.S.A.NO.316 OF 2006 Saraswathi Chemicals Proprietor, Saraswathi Leather Chem (P) Limited, 7, Deputy Ganj, Sardar Bazaar, Delhi – 110 006 rep. by Kishan Mundhra, Director. ... Appellant Vs. 1.Balmer Lawrie & Company Ltd., Balmer Lawrie House, 502, Anna Salai, Chennai – 600 018. 2.Justice G.Ramanujam (Retd.) 15, 3rd Main Road, Kasturba Nagar, Adyar, Chennai – 600 020. ... Respondents Original Side Appeal is filed under Order XXXVI Rule 1 of the Original Side Rules read with Clause 15 of the Letters Patent against the order dated 12.04.2006 made in O.P.No.197 of 2001 by this Court. For Appellant : Mr.B.T.Seshadri For Respondents: Mr.R.Subramanian for R1 JUDGMENT R.BANUMATHI,J Challenge in this appeal is the order dated 12.04.2006 in O.P.No.197 of 2001 dismissing the Petition filed under Sec.34 of Arbitration Act, 1996 and declining to interfere with the Award passed by the Arbitrator. 2. First Respondent-Balmer Lawrie and Company Limited is a Government of India Enterprise having interalia Leather Chemicals Division situate at Manali, Chennai producing Leather Chemicals https://hcservices.ecourts.gov.in/hcservices/ required by the Tanneries. For selling those products, 1st Respondent appoints stockists and consignment stock Agents throughout India. In order to market the products in Northern India, 1st Respondent entered into three Agreements with the Appellant - (i) Stockist Agreement dated 01.8.1995 effective from 01.4.1995; (ii) Consignment Stockist Agreement dated 20.03.1996; and (iii) Consignment Stockist Agreement dated 12.07.1997 effective from 01.04.1997 for a period of five years. Under the Consignment Stockist Agreement, Appellant had been appointed as Consignment Stock Agent in Punjab, Haryana, Himachal Pradesh, Uttar Pradesh, Rajasthan, Union Territory of Delhi and Jammu and Kashmir to sell directly or indirectly to persons or firms located in those Territories. Consignment Stock Agent was required to send the account sale accompanied by Demand Draft for the sale amount after deducting 20% commission and admissible expenses. If it fails to remit the amount, it has to pay interest at 20% per annum. Consignment Stockist Agreement dated 12.07.1997 contains Arbitration clause that is if any dispute arises between the parties, by the Managing Director of the 1st Respondent's Company or his nominee. 1st Respondent has been consigning its Leather Chemicals to the Appellant for sale as per the agreement. Inspite of supply of goods to the Appellant which in turn has been sold by the Appellant, the amounts due and payable to the 1st Respondent has not been paid. There were also certain unsold stocks at Delhi and Kanpur which have not been returned to the 1st Respondent nor their value remitted. The said default committed by the Appellant gave rise . dispute between the parties. Dispute having thus arisen, the 1st Respondent invoked clause 22 of the agreement providing for Arbitration by the Managing Director or his nominee. The Managing Director had nominated Justice G.Ramanujam,J (retired) as an Arbitrator to decide the said dispute by letter dated 09.12.1999. 2nd Respondent-Arbitrator entered on the reference on 11.12.1999 and held the first sitting on 22.12.1999 after notice to the parties. 2nd Respondent-Arbitrator held the sittings on 22.12.1999, 01.02.2000, 03.03.2000, 29.04.2000, 20.05.2000, 03.06.2000, 24.06.2000. On 29.04.2000, Appellant and his counsel were not present and hence, Appellant was set exparte and matter was adjourned to 20.05.2000. On 20.05.2000, Appellant gave letter dated 19.05.2000 stating that he would negotiate for settlement; but Appellant did not attend the hearing on 20.05.2000 and the matter was adjourned to 03.06.2000. In the hearing on 03.06.2000, 1st Respondent took time for adducing evidence and 2nd Respondent- Arbitrator adjourned the hearing to 24.06.2000. On 24.06.2000 evidence of 1st Respondent was recorded and documents were marked. After reserving the matter, 2nd Respondent-Arbitrator passed the Award on 24.07.2000. https://hcservices.ecourts.gov.in/hcservices/ 3. 1st Respondent has made the claim as under:- 1. Amount due for supply of goods : 1,74,97,110 2. Overdue interest for delayed payments : 95,02,334 3. Value of unsold stocks : 15,02,301 4. Loss of interest related to unsold stocks : 11,28,561 5. Consequential loss suffered : 1,42,80,000 -------------- 4,39,10,306 -------------- 4. 2nd Respondent-Arbitrator has passed the Award in respect of Claims as follows:- First Claim : Based on evidence of CW1 and Exs.C4, C5, C6, C7- Supply of goods series, C8-series, Arbitrator awarded Rs.1,74,97,100.10 towards the amount due for supply of goods. Second Claim : As per Clause-10 of the Agreement, in case the Overdue interest consignment stockist fails to remit the amount along with the account sale, it shall pay interest at 21% p.a. and therefore, 1st Respondent-Claimant is entitled to Rs.95,02,333.54 towards overdue interest for delayed payments. Third Claim : As per Ex.C3, Appellant is bound to return the unsold Value of goods or pay their value to the 1st Respondent. As unsold goods per Ex.C13, the remittance price of the stocks as on 31.8.1999 is Rs.15,02,301.15. Therefore, 1st Respondent-Claimant is entitled to Rs.15,02,301.15 towards the value of unsold stocks. Thus 2nd Respondent-Arbitrator has passed the Award for a total sum of Rs.2,85,01,745.00. On the amount awarded, Appellant was directed to pay interest at the rate of 18% p.a. from the date of claim i.e. 21.12.1999 till the date of payment. 5. Challenging the Award, Appellant filed O.P.No.197 of 2001 under Sec.34 of Arbitration and Conciliation Act, 1996. Award was challenged mainly on two grounds:- (i)Lack of opportunity to participate in the hearing particularly, no notice of hearing on 24.6.2000 was given; (ii)Only Consignment Stockist Agreement dated 12.7.19997 effective from 01.4.1997 contains Arbitration clause and while so, the 2nd Respondent-Arbitrator went beyond the scope of reference and he has adjudicated on claims in respect of matters not referred to him i.e. pertaining to claims even prior to 01.4.1997. https://hcservices.ecourts.gov.in/hcservices/ 6. Regarding first contention, after referring to the Minutes of Meeting of the Arbitrator, learned single Judge held that no opportunity was given by the 2nd Respondent-Arbitrator is not maintainable. Learned single Judge further held that Appellant was aware of the hearing date on 20.05.2000 and even though, he was personally present on 20.05.2000, Appellant did not attend the hearing except giving a letter dated 19.05.2000 on that date. It was held that Appellant should have taken care to verify the next hearing date and 2nd Respondent-Arbitrator had sent notice of hearing fixed on 03.06.2000 and therefore, it cannot be said that Appellant was not given reasonable opportunity to put forth his case. 7. Regarding second contention, learned single Judge held that though the stockist agreement dated 01.08.1995 did not contain Arbitration clause. Relying on the Judgment reported in AIR 1999 SC 2102 [Olympus Superstructures Pvt. Ltd., v. Meena Vijay Khetan and others], learned single Judge held that a reading of Clause 22 of the Agreement dated 12.07.1997 makes it clear that any dispute in terms of agreement shall be referred to the Arbitrator and the learned single Judge held that 2nd Respondent-Arbitrator is competent to decide the dispute relating to the stockist agreement dated 01.08.1995 and the Award in respect of Rs.18,70,701.10 is well within its jurisdiction. Finding that Court is not sitting as Court of Appeal and that the Arbitrator has given reasoning for awarding the amount and that it is not fit case for interfering with the Award, learned single Judge dismissed the Petition. Hence the Appeal. 8. In this Appeal, the Appellant has mainly raised two grounds:- ●No opportunity was given to the Appellant and that Appellant was "unable to present his case" which would vitiate the Award as per Sec.34(2)(a)(iii) of Arbitration and Conciliation Act, 1996. ●2nd Respondent-Arbitrator has dealt with the dispute not falling within the terms of reference and the Arbitrator has gone beyond the scope of terms of reference and the Award is vitiated as per Sec.34(2)(a)(iv) of Arbitration and Conciliation Act, 1996. 9. Re-Contention of inability to present case [S.34(2)(a)(iii) of Arbitration Act] - Mr.B.T.Seshadri, learned counsel for Appellant has submitted that as per Sec.34(2)(a)(iii) of Arbitration Act, lack of proper notice of appointment of Arbitrator or of arbitral proceedings or some other inability to present the case would vitiate the Award. Learned counsel for Appellant would contend that no notice was given for the adjourned hearing on 24.06.2000 and in the absence of parties while adjourning the case, Arbitrator has to give notice for the adjourned date and non-issuance of notice for the hearing on 24.06.2000 would have effect of vitiating the Award. https://hcservices.ecourts.gov.in/hcservices/ 10. Drawing our attention to the proceedings of 2nd Respondent- Arbitrator, learned counsel for Appellant would further contend that admittedly, Appellant did not attend the hearing on 03.06.2000 and 2nd Respondent-Arbitrator ought to have given notice of next hearing date 24.06.2000 and because of non-issuance of notice, Appellant was "unable to present his case" and the Award is liable to be set aside for "lack of proper opportunity". 11. For setting aside the Award, Sec.34(2)(a)(iii) of Arbitration Act covers three inter-related as well as separate grounds:- (1)lack of proper notice of appointment of arbitrator; (2)lack of proper notice of arbitral proceedings; or (3)inability to present case for any reason. 12. There cannot be any dispute with regard to the proposition of law that the parties would be entitled to a reasonable opportunity of putting their case. A reasonable opportunity would mean that a party must be given an opportunity to explain his arguments before the Tribunal and to adduce evidence in support of his case. The inability to present the case before the Arbitrator must be real and not stretched for the purposes of fitting the facts within its scope. 13. In CDJ 2003 SC 809 [Sohan Lal Gupta (dead) through L.Rs. and others v. Smt. Asha Devi Gupta and others], the Supreme Court held as follows:- "20. There cannot be any dispute with regard to the proposition of law that the parties would be entitled to a reasonable opportunity of putting their case. (See Mantrose Cannel Foods Ltd. v. Eric Wells (Merchants) Ltd. (1965) 1 Lyoyd"s report 597). A reasonable opportunity would mean that a party must be given an opportunity to explain his arguments before the Tribunal and to adduce evidence in support of his case. However, under the old Act, an oral hearing would only be permitted if a party requested one, unless there was some agreement to the contrary (See Henry Southern Ltd. v. Norwich Union Life Insurance Society (1992) 31 E.G. 70)" "21. What would constitute a reasonable opportunity of putting case as also qualification of the right has been stated in "Russell on Arbitration", 22nd Edition, paragraphs 5-053 and 5-054 which are in the following terms: "5-053 A reasonable opportunity of putting case. Each party must be given a reasonable opportunity to present his own case. This means he must be given an opportunity to explain his arguments to the tribunal and to adduce https://hcservices.ecourts.gov.in/hcservices/ evidence in support of his case. Failure to comply with this requirement may render the award subject to challenge under section 68 of the Arbitration Act, 1996. It is also a ground for refusing enforcement of the resulting award under the New York Convention. 5-054 Qualification of the right. The need to allow a party a reasonable opportunity to present his case can give rise to difficulties. To what extent can the tribunal intervene where, for example, a party's submissions or evidence is needlessly long, repetitive, focuses on irrelevant issues or is sought to be made over an extended period of time? What if a party ignores procedural deadlines imposed by the tribunal but maintains he still has points to put before it in support of his case? Inevitably each situation has to be dealt with in it own context but the following general considerations should be taken into account.' "23. For constituting a reasonable opportunity, the following conditions are required to be observed: 1)Each party must have notice that the hearing is to take place. 2)Each party must have a reasonable opportunity to be present at the hearing, together with his advisers and witnesses. 3)Each party must have the opportunity to be present throughout the hearing. 4)Each party must have the opportunity to present evidence and argument in support of his own case. 5)Each party must have a reasonable opportunity to test his opponent's case by cross-examining his witnesses, presenting rebutting evidence and addressing oral argument. 6)The hearing must, unless the contrary is expressly agreed, be the occasion on which the parties present the whole of their evidence and argument." "29. The principles of natural justice, it is trite, cannot be put in a straight jacket formula. In a given case the party should not only be required to show that he did not have a proper notice resulting in violation of principles of natural justice but also to show that he was seriously prejudiced thereby. In The Chairman, Board of Mining Examination and Chief Inspector of Mines and Another v. Ramjee (1997) 2 SCC 256), this Court held: "Natural justice is no unruly horse, no lurking land mine, nor a judicial cure all. If fairness is shown by the decision-maker to the man proceeded against, the form, features and the fundamental of such essential procedural propriety being conditioned by the facts and https://hcservices.ecourts.gov.in/hcservices/ circumstances of each situation, no breach of natural justice can be complained of. Unnatural expansion of natural justice, without reference to the administrative realities and other factors of a given case, can be exasperating. We can neither be finical nor fanatical but should be flexible yet firm in this jurisdiction. No man shall be hit below the belt that is the conscience of the matter". (See also Union of India and others v. Anand Kumar Pandey and others (1994) 5 SCC 663), and R.S.Dass etc. vs. Union of India and others (1986) (Supp.) SCC 617)." "33. In Aligarh Muslim University and others v. Mansoor Ali Khan (2000) 7 SCC 529), it was held: "The principle that in addition to breach of natural justice, prejudice must also be proved has been developed in several cases. In K.L.Tripathi vs. State Bank of India Sabyasachi Mukharji, J (as he then was) also laid down the principle that not mere violation of natural justice but de facto prejudice (other than non issue of notice) had to be proved. It was observed, quoting Wade's Administrative Law (5th End. pp. 472.75), as follows: "It is not possible to lay down rigid rules as to when the principles of natural justice are to apply, nor as to their scope and extent... there must also have been some real prejudice to the complainant; there is no such thing as a merely technical infringement of natural justice. The requirements of natural justice must depend on the facts and circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject-matter to be dealt with, and so forth". Since then, this Court has consistently applied the principle of prejudice in several cases. The above ruling and various other rulings taking the same view have been exhaustively referred to in State Bank of Patiala v. S.K.Sharma. In that case, the principle of 'prejudice' has been further elaborated. The same principles has been reiterated again in Rajendra Singh v. State of M.P." 14. Dealing with the question of "reasonable opportunity" and that "principles of natural justice" must not be stretched too far, in CDJ 2003 SC 809 [Sohan Lal Gupta (dead) through L.Rs. and others v. Smt. Asha Devi Gupta and others], the Supreme Court held that "parties should not only prove that he was not given proper notice, but also to show that he was seriously prejudiced thereby." 15. Grievance of Appellant is that he has not been given proper opportunity to present his case before the 2nd Respondent-Arbitrator https://hcservices.ecourts.gov.in/hcservices/ and adduce evidence in support of his case. The copy of Minutes/Proceedings of the 2nd Respondent-Arbitrator was produced before us. By perusal of the same, the various sittings/gist of proceedings of Arbitrator are as follows:- 11.12.1999 - Arbitrator entered on reference and intimated the date of first sitting. 22.12.1999 - First Sitting – Claimant filed claim statement and documents. Appellant represented by counsel. Time given till 01.02.2000 for counter statement. 01.02.2000 - Second Sitting – At the request of counsel for Appellant, time extended for filing counter statement till 03.03.2000. 03.03.2000 - Third Sitting – Appellant filed Petition for extension of time. Time given till 29.04.2000. 29.04.2000 - Fourth Sitting – Appellant and counsel were not present. Hence Appellant was set exparte. Claimant already filed documents even in the first hearing. Posted for Enquiry on 20.05.2000. 20.05.2000 - Appellant gave a letter dated 19.05.2000 stating that he would negotiate for settlement and seeking for adjournment. Even though appellant personally present on 20.05.2000, not chosen to stay back and did not attend the hearing on 20.05.2000. Next hearing adjourned to 03.06.2000. Notice of hearing sent to the Appellant. 03.06.2000 - Counsel for 1st Respondent-Claimant requests time as he has to go through the voluminous documents filed. At request the next hearing date fixed on 24.6.2000. 24.06.2000 - CW1 examined. Exs.C1 to C26 were marked. Submissions of counsel for Respondent- Claimant heard and the matter is adjourned for passing Award. 24.07.2000 - Award passed. 16. By perusal of the proceedings, it is seen that time was granted to the Appellant for filing counter from 22.12.1999 to 29.04.2000. On 29.04.2000, neither the Appellant nor his counsel attended the hearing and after waiting for an hour, 2nd Respondent- https://hcservices.ecourts.gov.in/hcservices/ Arbitrator set the Appellant exparte and posted the matter for enquiry on 20.05.2000. By perusal of the Minutes/Proceedings of the 2nd Respondent-Arbitrator, it is seen that on 20.5.2000, Appellant came to the venue of the meeting and handed over the letter seeking an opportunity for having discussion with the Claimant to have the matter settled by negotiation outside the Arbitration. On 20.05.2000, even though Appellant was present, he has not chosen to stay back and appear before the Arbitral Tribunal and to make representation. Pointing out that Appellant was already set exparte and that he has to take steps to set aside the exparte order by appearing before the Arbitral Tribunal and then seek adjournment of the case, Arbitrator adjourned the matter to 03.06.2000. Notice was also sent to the Appellant regarding adjournment of the matter to 03.06.2000. Only thereafter enquiry was conducted and Award was passed on 24.07.2000. Proceedings of the 2nd Respondent-Arbitrator clearly shows that Appellant was well aware of the proceedings on 20.05.2000. In fact, notice was also sent to the Appellant regarding adjournment of the matter to 03.06.2000. As pointed out by the learned single Judge, Appellant should have taken steps to find out the outcome result on the basis of the letter dated 19.05.2000. Having not taken any steps, Appellant cannot contend that no notice was given for the hearing held on 03.06.2000 and 24.06.2000. Award cannot be challenged on the ground that "no sufficient opportunity was given to the Appellant". 17. Section 25 of Arbitration and Conciliation Act, 1996 carries the provisions as to the effect of a party's default. An Arbitrator is authorised by the nature of his office to proceed exparte. He may make an exparte award if a party fails to appear inspite of notice to attend. Where a party once appeared before the Arbitrator and sought extension of time for filing his written statement, this amounted to submission to the jurisdiction of the Arbitrator. The Appellant might have remained exparte for any number of reasons. Having appeared before the Arbitral Tribunal and repeatedly taken adjournments from 22.12.1999 to 29.04.2000, Appellant cannot contend that he did not have the opportunity of "presenting his case before the Arbitrator". In fact on 20.05.2000, Appellant personally appeared before the Arbitral Tribunal and left the letter dated 19.05.2000 in the Arbitral venue addressed to the Arbitrator seeking an opportunity for discussion with the 1st Respondent-Claimant to have the matter settled by negotiation outside the Arbitration. Even though, Appellant came on 20.5.2000 for handing over the said letter dated 19.5.2000, Appellant has not chosen to stay back and appeared before the Arbitral Tribunal. As pointed out earlier, inspite of notice sent to the Appellant for hearing on 03.6.2000, Appellant has not chosen to appear on 03.6.2000. 18. Grievance of Appellant is that no notice of hearing fixed on 24.6.2000 was given to the Appellant. Having appeared before the Arbitrator till 20.05.2000, it is for the Appellant who should have https://hcservices.ecourts.gov.in/hcservices/ approached the Arbitrator and find out the next hearing date. Learned counsel for Appellant contended that failure to give notice for the hearing on 24.6.2000 would vitiate the Award. It was further contended that without affording opportunity, 2nd Respondent- Arbitrator proceeded with the matter and the Award suffers from infirmity and is liable to be set aside under Sec.34(2)(a)(iii) of Arbitration Act. No duty was cast upon the 2nd Respondent-Arbitrator to send notice to the Appellant when it has not evinced any interest. Upon the Appellant's failure to attend for number of hearings, 2nd Respondent-Arbitrator was justified in proceeding the matter exparte. 19. Observing that the procedural rule applicable to Arbitration proceedings is more tolerant than the rule followed in Court of law, in AIR 1955 Calcutta 354 [Juggilal Kamlapat v. General Fibre Dealers Limited], the Calcutta High Court summarised the principles which govern the matter as follows:- "If a party to an arbitration agreement fails to appear at one of the sittings, the arbitrator cannot or, at least, ought not to, proceed exparte against him at that sitting. Where the non-appearance was accidental or casual, the arbitrator ought ordinarily to proceed in the ordinary way, fixing another date of hearing and awaiting the future behaviour of the defaulting party. If, on the other hand, it appears that the defaulting party had absented himself with a view to preventing justice or defeating the object of the reference, the arbitrator should issue a notice that he intends at specified time and place to proceed with the reference and that if the party concerned does not attend, he will proceed in his absence. But, if after making such a peremptory appointment and issuing such a notice, the arbitrator does not in fact proceed ex parte on the day fixed, but fixes another subsequent date, he cannot proceed ex parte on such subsequent date, unless he issues a similar notice in respect of that date as well. If he issues a similar notice and the party concerned does not appear, an award made ex parte, will be in order. But if he does not issue such a notice on the second occasion, but nevertheless proceeds ex parte, the award will be liable to be set aside in spite of a notice of a peremptory hearing having been given in respect of the earlier date, subject, however, to the condition that prejudice was caused to the party against whom the ex parte order was made. But this duty to give notice of an intention to proceed ex parte is not an absolute duty. If it appears from the circumstances of the case that a particular party is determined not to appear before the arbitrators in any event, as when he has openly repudiated either the reference itself or the particular arbitrators and has show no desire to recant, the arbitrators are not https://hcservices.ecourts.gov.in/hcservices/ required to issue a notice of an intention to proceed ex parte against such a recusant person and may proceed ex parte and make a valid award without issuing a notice. The better course, however even in such a case is to issue a notice and give the party concerned a chance to change his mind." 20. The said decision of the Calcutta High Court was followed by the learned single Judge of Delhi High Court in AIR 1983 Delhi 413 [M/s.Lovely Benefit Chit Fund & Finance Pvt. Ltd. v. Puran Dutt Sood and others]. 21. Appellant was set exparte on 29.04.2000 and the matter was adjourned to 20.05.2000. Notice of hearing for 20.05.2000 was sent to the counsel for Appellant. As pointed out earlier, on 20.05.2000 Appellant personally