The division judge bench of Justice Tara Vitasta Ganju and Justice Rajiv Shakdher of the Delhi High Court in the case of Shriram Transport Finance Co. Ltd Vs Shri Narendra Singh held that where in the Arbitral proceedings the illegality goes to the very root of the matter, interference by the Court is warranted. Such interference will be justified especially when the Arbitrators conduct and impartiality are in doubt.
BRIEF FACTS
The factual matrix of the case is that the appellant and the respondent entered into a loan agreement for an amount of Rs.6,00,000/-. Due to the dispute between the parties, the vehicle was repossessed and the legal notice was issued by the appellant company to the respondent demanding a payment of Rs.4,70,248/. The arbitration clause invoked and the sole arbitrator was appointed to adjudicate the dispute/differences between the parties. The learned district judge has allowed the Petition under Section 34 of the Act filed by the Respondent and set aside the Arbitral Award, stating that there is no compliance of the provisions of Sections 12 and 21 of the Act.
Being aggrieved with the decision of the district judge, the appellant company has filed the present appeal challenging the Impugned Judgment on the following grounds:
A. Mandatory notice as stipulated under section 21 of the Arbitration and Conciliation Act, 1996 was duly issued to the respondent;
B. There was no violation of section 12 of the Arbitration and Conciliation Act, 1996;
C. The respondent didn't object the appointment of the Ld. Arbitrator during the Arbitral proceedings.
COURT’S OBSERVATION
The high court held that the phrase referred to in Section 13(2) of the Act is “or after becoming aware of any circumstances referred to in sub-section (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal‖. Admittedly, the Respondent did appear on two dates (18.03.2019 and 23.04.2019) before the Arbitration without making any such challenge, hence the challenge was not made within 15 days of the constitution of the Arbitral Tribunal. However, the Arbitrator had not complied with the provision of Section 12 of the Act, by making the mandatory disclosure of the fact that he had previously appeared as an Arbitrator for the Appellant Company. Without such knowledge, there was no occasion for the Respondent to doubt the Arbitrator. The challenge could only, therefore, be made by the Respondent after becoming aware of these circumstances, which, as discussed above, he became aware of after obtaining a certified copy of the ex-parte Arbitral Award on 20.07.2019. In the present case, the Respondent has made the challenge of “circumstances” as envisaged in Sub-section (3) of Section 12 of the Act, after passing of the Arbitral Award. This objection was therefore, taken by the Respondent in his Petition under Section 34 of the Act stating therein the reason for the said challenge. The court, therefore, hold that there is no non-compliance of the provisions of the Act by the Respondent.
The scope and ambit of a challenge under Sections 34 and 37 of the Act is no longer res integra. In a recent decision by the Supreme Court in the matter of PSA SICAL Terminals Pvt. Ltd. v Board of Trustees of V.O. Chidambranar Port Trust Tuticorin reported as 2021 SCC OnLine SC 508, the Supreme Court has reiterated its view, in MMTC Limited v. Vedanta Limited. In exercise of powers under Section 37 of the Act, the scope of interference is completely curtailed. The Supreme Court has, however, held that where in the Arbitral proceedings the illegality goes to the very root of the matter, interference by the Court is warranted. Such interference will be justified especially when the Arbitrators conduct and impartiality is in doubt. As already discussed above, in the present case, there has been noncompliance with Section 21 of the Act by the Appellant Company. Further, the Arbitrator‟s disclosure as mandated in Section 12 of the Act read with the Fifth and Sixth Schedules of the Act, is also absent. Thus, any Award rendered by such an Arbitrator, as such, cannot be sustained.
CASE NAME- Shriram Transport Finance Co. Ltd Vs Shri Narendra Singh
CORUM- Justice Tara Vitasta Ganju and Justice Rajiv Shakdher
CITATION- FAO (COMM) 179/2021 and CM APPL. 39706/2021
DATE- 13.10.22
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