1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.13 OF 2007 IN ARBITRATION CASE NO.ARB/SVC/070 OF 2004/5 M/s.Prabhat General Terepene Industries Pvt.Ltd.& Ors. .. Petitioners Vs. The Shamrao Vithal Co-operative Bank & Ors. .. Respondents Mr.Kevik Setalwad with Sheetal Shah i/by M/s.Mehta & Girdharlal for the petitioners. Mr.D.H.Mehta with Mr.R.D.Suvarna for the Respondents. CORAM : S.C.DHARMADHIKARI J. DATE : 11TH DECEMBER, 2009 P.C. : 1. By this petition u/s.34 of the Arbitration and Conciliation Act, 1996 the petitioners prays that the award dated 21st November 2006 made by the sole Arbitrator appointed u/s.84 of the Multi-State Co-operative Societies Act, 2002 in Arbitration Case No.ARB/SVC/070 of 2004/5 be set aside. 2. The 1st Respondent Bank is a Co-operative Society deemed to have been registered under the Multi-State Co-operative Societies Act, 2002.. It is carrying on business as Co-operative Bank. The 2nd Respondent is the Arbitrator. It is common ground that the 1st Respondent filed dispute in the Co-operative Court at Mumbai against the petitioners herein being Case No.240 of 1999. It was the case of the 1st Respondent Bank in that dispute application that the Petitioner No.1 (Opponent No.1) is a private limited Company registered under the Companies Act, 1956. Respondent 2 No.3 & Petitioner Nos.2 & 3 (Opponent Nos.2 to 4) are the Directors of Petitioner No.1. Petitioner Nos.4 & 5 are the sureties and/or guarantors for the dues of the 1st Respondent. 3. It is stated that in or about 1985 at the request of the Petitioners 1 to 4, the 1st Respondent Bank extended credit facilities such as Bill discounting, Import Letter of Credit and Bank Guarantee facilities. These facilities were availed of from time to time. It is the case of the Bank that the facilities were secured by a Guarantee so also a Deed of assignment dated 1st October, 1988. The personal guarantee of the guarantors and the Deed of Assignment was to secure the dues under these facilities. These facilities were continued/renewed and there are further security documents in so far as Bill Discounting facility. It is the case of the 1st Respondent that the petitioners availed of these facilities and they failed and neglected to pay the amounts which were due and payable to the 1st Respondent. They did not regularise the accounts either. In or about September, 1995 the petitioner No.1 approached and requested the 1st Respondent Bank for opening an Import Letter of Credit for U.S.Dollar 42,940.00 in favour of M/s.Shenzhen Haipenj Import & Export Trading Co., 47, Tanning Road, Shenzhen, China upon the basis of the representations, promises and assurances made by Petitioners 1 to 4. Respondent No.1 aceeded to the request of Petitioner No.1 and opened the Import Letter of Credit through Bank of Baroda on D.P.basis. Upon import of the material and upon receipt of the Import Documents, Bank 3 of Baroda made payment under the said Import Letter of Credit to the said M/s.Shenzhen Hajpenj Import & Export Trading Company on 11th December, 1995. The Bank of Baroda debited the Respondent No.1 Bank s’ account with 14,52,899.00. The Petitioners expressed their inability to pay the said amount to the Respondent No.1 Bank and requested the Respondent No.1 Bank to debit the said amount to I.B.P. Account of Petitioner No.1. Thereafter the import documents were handed over to the Clearing Agent for clearance on 19th January, 1996. On 30th March, 1986 at the request of Petitioners a separate pledge account was opened in the name of Petitioner No.1 and the amount debited to I.B.P.account as aforesaid was transferred to the said pledge account. The Petitioners thereafter approached Respondent No.1 Bank and made representations, promises and assurances to the Respondent No.1 Bank that the imported goods be allowed to be sold and/or disposed off by them to avoid mitigation of damages on the ground that the goods imported were of inferior quality. The Respondent No.1 Bank believing the said representations, promises and assurances made by the petitioners to be true and on the clear understanding that the petitioners would dispose of the imported material and deposit the sale proceeds thereof with the Respondent No.1 Bank towards the payment of their dues allowed the petitioners to dispose of said imported material. The Respondent No.1 Bank handed over the Import Documents to the petitioners. It is the case of the Respondent No.1 Bank that though the petitioners sold and/or 4 disposed of the said goods they failed and neglected to deposit the sale proceeds thereof with the Respondent No.1 Bank and thereby committed breach of understanding upon the basis whereof the Respondent No.1 Bank had handed over the Import Documents to the petitioners. However, despite this accommodation, the petitioners refused to pay the amounts and therefore the Advocates notice was issued on 29th June, 1998 calling upon the petitioners to pay the outstanding amount together with interest. There was reply thereto in which according to the 1st Respondent, a false stand was taken that only a sum of Rs.12,23,120/- was payable to the Respondent No.1 Bank towards bills discounting limits and that there was no liability outstanding under the Import Letter of Cr;edit account. It is in such circumstances that initially the 1st Respondent Bank filed suits against the Drawees and/or acceptors of Bills/Hundies drawn by the petitioners and they subsequently approached the Co- operative Court claiming a sum of Rs.33,12,441/- together with interest so also the other reliefs. 4. It is common ground that this dispute application which was filed in the Co-operative Court came to he disposed of more particularly on account of a finding of the Maharashtra State Co-operative Appellate Court that the dispute is not maintainable as the 1st Respondent is Multi State Co- operative Society. It is in these circumstances that the matter went before the Central Registrar under the Multi-State Co-operative Societies Act who appointed the Arbitrator. 5 5. The petitioners case is that the Arbitrator has proceeded exparte, in their absence and has rendered the exparte award. The grievance of the petitioners is that the Arbitrator was aware that in the Co-operative Court the petitioners filed their written statement and it was part of the record of the arbitral proceedings. However, the Arbitrator adjourned the matter from time to time and called upon the petitioners to file written statement. It was the case of the petitioners that before the Arbitral Tribunal all of them are not served with the notices of arbitration. It is stated that ultimately the written statement was prepared but before it could be tendered the Arbitrator passed conditional order directing that a sum of Rs.5 lakhs should be paid by the petitioners to the 1st Respondent within a period of five days. This was onerous and excessive condition and in any event when the petitioner Nos.3, 4 and 5 were not served with the notice, the Arbitrator could not have passed such a drastic order. Resultantly, the Arbitrator proceeded exparte and took on record the claim affidavit of the 1st Respondent. Thereafter the petitioners became aware of this exparte award. That is how they have moved this petition challenging the same. 6. It is contended by Mr.Setalwad appearing on behalf of the petitioners that the award directs payment of a sum of Rs.33,12,441/- from the petitioners jointly and severally together with interest @ 18% p.a.with effect from 1st April, 1999 till payment. Mr.Setalwad submits that the award does not rest here. The award declares that in terms of the Registered Deed of 6 Assignment dated 1st October, 1988 all the rights, title and interest of petitioner Nos.4 & 5 in respect of immovable property stand assigned and transferred to the 1st Respondent Bank free from all encumbrances w.e.f. 1st October, 1988. The award proceeds to direct further that if this amount is not paid by the petitioners to the 1st Respondent Bank within a period of one month from the date of service of that order on the petitioners, the Respondent Bank shall be entitled to sell the immovable property and appropriate the sale proceeds towards the satisfaction of its dues. 7. Mr.Setalwad submits that the Arbitrator erred in proceeding exparte. There is no notice of the proceedings to all the petitioners. The petitioners have placed written statement on record as is apparent from the communications addressed to the Arbitrator. However, the Arbitrator without adverting to any of the statements made by the petitioners, so also without giving them an opportunity to cross-examine the 1st Respondent s witness passed exparte award. Mr.Setalwad submits that ’ the clear case of award being vitiated is made out. The award is rendered in breach of the principles of natural justice and u/s.34 (2) (a) (iii) of the Arbitration Act, the same can be set aside. The petitioners have furnished proof in terms of the documents compiled by them of the award being vitiated. Therefore, it be set aside on this ground alone. Mr.Setalwad submits that the award is liable to be set aside also on the ground that the Arbitrator has proceeded on the basis that all the facts 7 are admitted. Inviting my attention to section 25(b) of the Arbitration and Conciliation Act, 1996 Mr.Setalwad submits that the Arbitrator cannot proceed as there is legal bar to proceeding in this manner. The Arbitrator merely takes on record the affidavit of the 1st Respondent s officer. ’ However, there is no proof of any of the statement made by the 1st Respondent in their claim. The contents of the documents cannot be held to be proved. The Arbitrator therefore was in a clear error in holding that all facts are admitted by the petitioners, more so when there is a written statement on record of the Co-operative Court so also before the Arbitrator. Therefore and in such circumstances, the award is vitiated by error apparent on its face and is required to be set aside. 8. Mr.Setalwad submits that on merits also the award must be set aside. The award proceeds to hold that there is guarantee executed by two petitioners ( Petitioner Nos.4 & 5). However there is only one guarantee. Even that the personal guarantee is on a stamp paper which is more than six months old. The Bombay Stamp Act as amended contains Section 52(B). That section imposed bar on use of stamp papers which are more than six months old. Thus, this deed of guarantee which was not validly stamped, could not have been admitted in evidence. Mr.Setalwad submits that had the Arbitrator issued notice to the petitioners that he would proceed exparte and in their absence, then, they would have certainly remained present and would have pointed out this fatal defect in the guarantee. However, there is no final notice before the award is 8 passed. In such circumstances, if this deed of guarantee is inadmissible in evidence, then the basis of the award itself is erroneous and illegal and therefore the award must be set aside. Mr.Setalwad then submits that the foundation of the award is Deed of Assignment purportedly creating the assignment in favour of the 1st Respondent Bank. However it is pertinent to note that what the petitioners under the Deed of Assignment have agreed, is to purchase the shares of private limited Company in respect of a flat in the Co-operative Housing Society, that is the agreement for sale. There is no Sale Deed or Conveyance. This Assignment is of limited rights. However, assuming that the Deed of Assignment which is executed in respect of the surety in the form of immovable property can be held to be document of security, yet, the pre- requisite for its admissibility is its registration. The Deed of Assignment is not registered. Therefore, section 17 read with section 49 of the Registration Act enacts complete bar in this Deed of Assignment being read in evidence. Therefore, when the award is founded on this Deed of Assignment it refers to the same and relies upon it to conclude that the 1st Respondent Bank can proceed to dispose of the flat in order to recover the dues, then the award must be set aside. Mr.Setalwad relies upon the following decisions in support of the aforementioned contentions:- AIR 1955 CALCUTTA 354 (Vol.42, C.N. 101), Juggilal Kamlapat Vs. General Fibre Dealers, Ltd., 9 AIR 1983 DELHI 413, M/s. Lovely Benefit Chit Fund & Finance Pvt. Ltd., Vs. Puran Dutt Sood and others. AIR 1978 CALCUTTA 454, Dipti Bikash Sen and another Vs. India Automobiles (1960) Ltd. 9. On the other hand Mr.Mehta appearing for the 1st Respondent submits that this is a petition u/s.34 of the Arbitration and Conciliation Act, 1996. The power to set aside the award is limited by section 34 itself. It is for the party challenging the award to furnish the proof of its inability to attend and participate in the proceedings. Mr.Mehta submits that in this case, the petitioners did not co-operate with the Arbitrator deliberately. They appeared all throughout, and it is false to suggest that they had no notice of the proceedings. In fact they appeared through Advocate and sought adjournment for filing written statement. Finally when they saw that the Arbitrator is not going to accommodate them, endlessly, the petitioners sought time to put in a written statement. However, after seeking time and appearing before the Arbitrator once again they failed to file the written statement. Therefore the conditional order was passed. The petitioners did not abide by the conditional order and thereafter refused to appear before the Arbitrator. The Arbitrator could not be blamed in these circumstances for proceeding exparte. 10. Mr.Mehta further submits that the exparte award need not be necessarily set aside. If this Court is satisfied that no prejudice has been caused by 10 the Arbitrator proceeding exparte but the Petitioners kept themselves away, then, the Award be upheld. In the instant case, Mr.Mehta submits that the written statement has been forwarded after the award is rendered. The petitioners have failed to demonstrate any prejudice being caused to them. On the other hand, their delaying tactics were noticed by the Arbitrator and therefor he did not permit the Petitioners to prolong the matter. If the Arbitrator insisted on proceeding with the matter expeditiously he cannot be blamed. More so, considerable time had elapsed on account of pendency of proceedings in the Co-operative Court, and therefore, the award is not liable to be set aside. 11. Mr.Mehta submits that it is erroneous to urge that the foundation of the award is the Deed of Assignment. Mr.Mehta submits that there is no dispute about the liability. The dues of the Bank is unpaid and outstanding. That is the claim. The claim must be taken in its entirety and to secure the dues securities were created in the form of guarantees and the Deed of assignment. It is not as if these Documents are the basis of the findings in the award. The award holds that the claim is proved, the amount outstanding is secured by these securities. It is not as if the effect of the Deed of Assignment and the obligations thereunder has been finally gone into and considered. As and when the award is brought for execution, it is for the Civil Court to decide as to whether the property could be permitted to be sold by the Bank, Whether such right is conferred in the Bank or not, is a matter 11 which would be relevant at the stage of execution and enforcement of the award. At this stage, it cannot be said that the award is vitiated merely because it holds that the dues are secured. In these circumstances, considering the conduct of the petitioners this Court must not interfere with the award and should dismiss the petition. The pure findings of facts cannot be interfered with even if another view is possible. For all these reasons, the petition be dismissed. In support of his submissions, Mr.Mehta relied upon the decision of the Hon ble Supreme Court in ’ (2006) 11 SCC 181 – Mcdermott International Inc V/s.Burn Sandard Co.Ltd.& Ors. 12. With the assistance of the learned counsel appearing for both sides I have perused the petition and all the annexures thereto including the award. Wherever necessary, I have perused with the assistance of the counsel, the photocopies of the documents in the compilation. 13. It the outset, the present petition is filed impugning the award which is rendered exparte. Section 34(2) (a) (iii) of the Arbitration and Conciliation Act, 1996 reads as under:- 34 (2) An arbitral award may be set aside by the Court only if- (a) the party making the application furnishes proof that - (i).... (i)..... (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. 14. A bare perusal of the provisions of the Act would indicate that the 12 arbitral award may be set aside by the Court only if the party making application u/s.34 furnishes proof that it was not given proper notice of the appointment of the Arbitrator or of the arbitral proceedings or was otherwise unable to present his case. 15. In the present matter, it is not the case of the petitioners that they had no notice of the appointment of the Arbitrator. Their case is that they had no notice of the arbitral proceedings or were otherwise unable to present their case. Atleast, the arguments before me proceed on that basis. However, if the petition is perused what the petitioners would urge as ground to challenge the award is that injustice was being done with passing of exparte award. That is how the petition and atleast the grounds of objection in paragraph No.17(q) would read. Thereafter in ground (t) it is stated that the exparte award is unlawful and arbitrary and the same be set aside. In grounds (w) & (x) it is stated that the learned Arbitrator has failed to appreciate that since the Petitioners were aware that the said flat was already sold, the claim was bad in law for non-joinder of parties and the same was liable to be dismissed. The ground of natural justice is raised on the basis that necessary parties have not been heard. Thereafter, it is urged that even if the party remains absent while passing exparte order or judgment it is the statutory obligation of the Arbitrator to look into in the interest of such absent parties. In ground (z) it is contended that the award is rendered without perusing the record and more particularly the contents of the 13 written statement already filed. It is also urged that the Arbitrator has no jurisdiction to pass any conditional order/award in so far as the written statement being filed. 16. These are the grounds which are raised in this petition. In none of these grounds it has been stated that the petitioners had no notice of the arbitral proceedings or that they were otherwise unable to present their case. It has been argued orally that the notice was not given. My attention was invited to the Roznama of the arbitral proceedings. Roznama would indicate that the petitioners had notice; they appeared before the Arbitrator and sought time; on one occasion Mr.Gaurishankar represented all the petitioners as authorised person/constituted attorney and sought adjournment; on another occasion the Advocates who are representing the petitioners before me appeared before the Arbitrator; at one stage they tried to urge that they do not represent all the petitioners/opponents before the Arbitrator. However, at an earlier stage the Arbitrator had noticed that they appeared on behalf of all the petitioners/ opponents. From the roznama itself, it is apparent that the petitioners had notice of the arbitral proceedings and that the exparte award would be rendered if they do not remain present. Notice of the arbitral proceedings itself indicates that the Arbitrator would proceed exparte in case the petitioners fail to appear or defend their case. There is substance in the contention of Mr.Mehta that what the petitioners did before the Arbitrator was nothing but adopting delaying tactics. All that 14 they desired was to prolong the adjudication. They had no dispute as far as liability is concerned, nor had they denied the statements in the claim petition. All that they attempted was to postpone the adjudication and which attempt did not find favour with the Arbitrator. It is well settled that if the parties are deliberately keeping away from the Arbitral proceedings, the Arbitrator cannot be faulted with in proceeding exparte. Even in the decision of the Division Bench of the Calcutta High Court relied upon by Mr.Setalwad it is held that the Arbitrator can proceed exparte if the defaulting party absented with a view to prevent justice or defeating the object of the reference . While sounding note of caution that the Arbitrator may give one more opportunity or notice, what the Division Bench of the Calcutta High Court held that where the question arises after an exparte award has, in fact, been made and it appears that no notice of an intention to proceed exparte had been given, the principle to be applied is that the award will not be upheld, unless it is shown or it appears that the omission to give a notice has not caused any prejudice to the party against whom the exparte award was made. 17. The very purpose of the arbitral proceedings and the reference is to have expeditious resolution of the disputes without formalities and procedural requirements of a Court of law. The purpose and object would be defeated if the parties are allowed to buy their time before the Arbitrator. To my mind, the Arbitrator cannot be faulted with in this case for proceeding exparte against the petitioners. It is not as if the petitioners 15 were unable to present their case at all. The petitioners were given opportunities to put in the written statement. The adjournments were granted for that purpose. However, the Arbitrator after finding that the opportunities were mis-used by the petitioners to buy time, he decided to impose a condition that if the petitioners desire to put in their written statement on record, they must deposit Rs.10 lakhs or pay the said sum to the 1st Respondent Bank. To my mind by this direction alone and without anything more, it cannot be said that the petitioners were unable to present their case. The petitioners could have appeared and requested that the order be recalled. They could have urged before the Arbitrator that the record of the Co-operative Court is enough and sufficient and that they are adopting their stand taken in the written statement filed before the Co-operative Court. They do nothing of this kind, but deliberately and mischievously made an attempt to inform the Arbitrator that the Advocate engaged is not appearing for all the petitioners. Their Advocate shifts the stand. Initially he states that he is appearing for all the petitioners, but later on states that he is only appearing for Petitioner No.1. Because of this shifting stand and the delaying tactics adopted, that the Arbitrator has imposed the condition. I am not in agreement with Mr.Setalwad that this condition is harsh and excessive and should not have been imposed and results in shutting out the defence of the petitioners. The petitioners have not been prejudiced by this condition or by the Arbitrator proceeding exparte and there is 16 substance in the contention of Mr.Mehta that the petitioners are all family members and they were aware of the pendency of the proceedings. It is not as if the Bank suddenly initiated the proceedings. The proceedings were instituted initially in the Co-operative Court and the jurisdiction of the Co-operative Court was challenged by these very petitioners. That objection was upheld at appellate stage and that is how the arbitral reference came to be made. In the peculiar facts of this case, I am of