Bombay High Court
Society vs Rna Hills Co-Operative Housing ... on 6 December, 2012
Bench: Anoop V.Mohta
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dgm
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 121 OF 2012
1 Mrs. Prajakta Mahesh Joshi
Indian inhabitant age 35 years, residing
at Flat No.D-514, Dev-Deveshwar
Society, Telli Gali, Xth Lane, Andheri East,
Mumbai 400 069
2 Mr. Mahesh Shrikrishna Joshi
Indian inhabitant age 36 years, residing
at Flat No.D-514, Dev-Deveshwar
Society, Telli Gali, Xth Lane, Andheri East,
Mumbai 400 069 .... Petitioners
vs
1 Mrs. Rekha Uday Prabhu
104, Apollo Complex, R.K. Singh Marg,
Andheri East, Mumbai 400069
2 Mr. Uday Manjunath Prabhu
104, Apollo Complex, R.K. Singh Marg,
Andheri East, Mumbai 400069
3 The Secretary and Chairman
RNA Hills Co-operative Housing Society Ltd.
Near Sathya Darshan, Gundavali Gaothan,
Andheri East, mumbai 400 069 ..... Respondents
Mr. Subodh Gokhale for the petitioners.
Mr. V. Verma i/by S. K. Associates for respondents 1 and 2.
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CORAM: ANOOP V. MOHTA, J.
DATE : December 06, 2012
ORAL JUDGMENT:
Heard finally by consent.
2 The Petitioners have invoked Section 34 of the Arbitration and
Conciliation Act, 1996 (for short, the Arbitration Act) and thereby
challenged an exparte award. The operative part of Award dated 14
August 2010 is as under :
"(i) I hereby direct and award that the Opponent Nos. 1, 2 be
held responsible & accountable for specific breach of their terms
of contract along with Op. No.3/RMNA Hills CHS Ltd for its
contributory role herein above, hence, are jointly & severally
liable & accountable to arrange and to execute a SALE DEED &
convey the contracted Flat consisting of 2BHK-admeasuring
1050 SQFT at RNA Hills CHS Ltd., Opp. Satya Darshan, Andheri
(E), Mumbai 400 069, if possible Flat no. A-102 or its substitute,
main road, facing corner flat on the 1 st floor within its complex,
on collection of sum of Rs. 38,00,000 (Thirty eight lakhs) from
the Disputants, within 30 days hereof. [It is to be expressly
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noted by all concerned that the corresponding stamp duty
Maximum Rs.1,50,000 (though factually the amount payable as
per current valuation of premises / corresponding stamp duty
rates may vary & may go up to Rs.5,00,000 (Five lakhs), the
difference of which has to be borne by the 3-opponents herein &
the Deed Registration charges Rs.30,000/- (Thirty thousand) &
Society's Transfer charges Rs. 25,000 (Twenty five thousand) to
be advanced solely by the Disputant to the RNA Hills CHS
Society on receipt of this Arbitral Award & on issuance of
allotment/confirmatory letter to above effect by Opponent
No.3/RNA Hills CHS Ltd.
(ii) In the alternative, the Opponents will locate within next
30 days a suitable flat on the first floor, of the same size in a like
comp;lex in the same vicinity & complete all formalities, failing
which they will be liable to jointly and proportionately pay in
advance per month on or before 7 th of each month a sum of Rs.
48,000 [Rupees forty eight thousand] towards
cost/compensation for non-accommodation to the Disputants,
until next 3 [three months] & thereafter every month within an
automatic increase of 15% [Fifteen percent] per quarter, on the
last paid amount as disturbance allowance until finalization of
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the above arrangement.
(iii) The Opponents shall also reimburse the Brokerages &
Charges if any payable for arranging an alternate
accommodation upto a maximum of 2 months rental or
compensation as at Sr. No. (ii) hereinabove, along with initial
lease rental advance deposit not exceeding to Rs.5,00,000 [five
lakhs], immediately on receipt of demand to pay so to any 3 rd
party on account of the above and without any further
application/representation from the disputants, for the same but
refundable on handing over peaceful possession with all the
proprietary documents including share certificates registered in
its favour and the 2-BHK flat admeasuring 1050 SQFT and on
signing of a quit claim deed on satisfactorily completing the
above transactions.
(iv) In the alternative, the opponents should arrange to pay a
lump sum compensation of Rs.77,50,000 to the opponents
shared equally by all the three opponents, being the difference
in the cost of like flat of same size in the same vicinity, within
the next 60 [sixty days]. Current market price being Minimum
@11,000/- per sq.ft. {Eleven thousand} x 1050 SQFT =
Rs.1,15,50,000, less amount that was payable by the disputant
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i.e. Rs.38,00,000. Hence the compensation/liquidated damages
comes to Rs.77,50,000/- (Rupees seventy-seven lakhs fifty
thousand) along with simple interest @ 10% (ten percent) per
annum from 30 days after the date of receipt of this Arbitral
Award until physical payment and if the compensation is settled
after 90 days of receipt of the arbitral award & beyond then
interest has to be calculated @ 12% {Twelve per cent} per
annum payable/compounded on monthly rest basis, until
payment.
(v) Disputant's further representation with respect to claim for
additional compensation against Harassment and Mental agony
coupled with cost of increased operations including litigations
initiated and for making alternate accommodation, in the
process of above transaction has been rejected as the
compensation considered per contracted terms have been fairly
& thoroughly taken in view & weighed upon against the interest
that must have earned /accrued on the Rs.38,00,000/- (Thirty
eight lakhs) while lying with the disputants when in he above
process & also while arriving per above determinations.
(vi) Cost of this Arbitration proceedings is Rs.15,000 {Fifteen
thousand}, payable by the entire, 2 Disputants as well as by the
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3 opponent parties, proportionately.
(vii) The opponents shall comply with the above Arbitral Award
within 30 days of receipt thereof, failing which recovery
proceedings may be adopted.
(viii) Copies of this Arbitral Award, is being supplied to all the
parties accordingly."
The basic events, as per the Petitioners, are as under :
3 On 28 February, 2007, a MOU (Memorandum of Understanding)
for a sale of a 2 BHK flat was signed between the Petitioners and the
Respondents. The Respondents made initial payment of Rs. 50,000/-
and handed over the documents. On 23 June, 2007, as the
Respondents delayed balance payment, the Petitioner on request
refunded the advance of Rs.50,000/- to the Respondents by a Bank
transfer. On 19 August, 2007, the Respondents filed a Consumer
Complaint No. 149 of 2007 before State Consumer Disputes Redressal
Commission, Maharashtra against the Petitioners. On 10 January,
2008, the complaint was dismissed by the State Commission. On 17
February, 2008, the Respondents file First Appeal No. 100 of 2008
before the National Consumer Commission, New Delhi, challenging
the State Commission Order. The same is pending.
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4 On 10 May, 2010, the Petitioners received a Notice of
Arbitration. The Petitioners sent a reply through its Advocate-cum-
Arbitrator. On 18 June, 2010, the Petitioners received a reply notice
from the learned Arbitrator posing as an Advocate for the
Respondents. On 26 August, 2010 a copy of the Arbitral award
received by the Petitioners.
Unilateral appointment of Arbitrator-cum-Advocate by one party:
5 There is no dispute that there exists the arbitration clause in the
agreement between the parties. As dispute arose, Respondents 1 and
2 invoked arbitration clause and thereby unilaterally appointed
Advocate Shri Shailendra S. Gandhi as the Arbitrator.
6 The Petitioners immediately by letter dated 24 May 2010
replied to the notice issued by the Arbitrator dated 10 May 2010 by
which he fixed the first hearing/meeting at his office and also directed
the parties to deposit Rs.50,000/- towards the initial payment. The
Petitioners resisted every aspects of the invocation and the
appointment of the Arbitrator and specifically mentioned that they
would not be participating in the arbitration proceedings. It was
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specifically pointed out about the dismissal of the Respondents'
consumer complaint. It was also mentioned about the refund of
Rs.50,000/- to the Respondents. Therefore, there existed no dispute.
The Petitioners thereby also contended that having once invoked the
judicial proceedings, there was no question of invoking of arbitration
clause apart from unilateral appointment of the Arbitrator.
Dual capacity of Arbitrator and Advocate of one party is
impermissible:
7 Strikingly, the Arbitrator who was an Advocate of the
Respondents by its reply dated 18.6.2010 referring to the above
communication/reply of Petitioners, insisted the Petitioners to
participate in the arbitration proceedings on 28 June, 2010 by stating
it to be the last and final call. Surprisingly, the learned Arbitrator,
who appears to be the Advocate of the Respondents, even replied in
detail to the contentious issues specifically raised by the Petitioners in
communication dated 24 May 2010. The tenure of the
reply/communication of Arbitrator dated 18.06.2010 was like an
Advocate replying on behalf of the client. If we overlook last
paragraph of the communication of the Arbitrator, the denial and the
assertion are as that of contesting Respondents.
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The consent is a must for app;ointment of arbitral tribunal:
8 The arbitration clause referring to the Arbitration Act permits
the parties to resolve their dispute through a sole Arbitrator.
Considering the scheme and object of Arbitration Act, in my view, first
requirement is that the Arbitrator must be appointed by the consent of
the parties. The consent of Petitioner was never obtained. Therefore,
the unilateral appointment of Arbitrator, in such fashion itself is
impermissible mode to resolve the disputes by this alternative dispute
resolution mode through the Arbitration. The requirement of consent
so provided and/or clause so mentioned above, in no way, permits any
one party to appoint Arbitrator unilaterally. It is contrary to the
terms and the law. Apart from this clause, it is necessary for both the
parties to appoint and/or nominate and/or select sole Arbitrator by
consent. The appointment of the Arbitral Tribunal without consent
itself was contrary to the agreed terms of the contract.
9 The Arbitrator's role is quite limited though appointed by the
parties, basically at the stage of fixing the meeting of arbitration
proceedings. He is not empowered and/or even permitted to deal
with the merit of the matter in such fashion on behalf of other party
while calling or fixing the meetings. At this stage, the requirement is
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simply to give intimation and/or call upon the parties to attend in
arbitration proceedings. Such notice/intimation in no way can be
denial and/or assertion of other side's case. From the contents of the
communication dated 18.06.2010, it is clear that the Arbitrator who
was Advocate of the Respondents, acted also as the Advocate and also
as the Arbitrator. It is just impermissible. Such dual capacity of
Advocate and/or even of the Arbitrator is against the basic provisions
of the Arbitration Act and/or the arbitration scheme itself. The
Advocate by consent can act as Arbitrator, but cannot act in such dual
capacity for only one party.
The award is illegal.
10 The learned Arbitrator, by the impugned Award, directed the
Petitioner to provide flat to the Respondents and in the alternative,
directed to pay compensation and/or liquidated damages to the extent
of Rs. 77,50,000/- along with simple interest at 10% and also
awarded 12% interest, if amount as awarded is not paid within 90
days. He also proportionately awarded the cost of Rs.15,000/-. The
whole approach is contrary to law and the record.
11 As recorded above, the Petitioners, considering the facts and
circumstances, immediately after receiving of arbitration notice,
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denied the claim as well as the initiation of arbitration in such fashion
and specifically opposed even the participation in the arbitration
proceedings. The Petitioners therefore never attended the arbitration
proceedings. The learned Arbitrator noting this absentee, has passed
the exparte award by holding that the Respondent/disputant proved
"beyond reasonable doubt" that the Petitioners breached and failed to
perform the terms and conditions of MOU. This itself means the
learned Arbitrator has passed the award based upon the documents
provided by the Respondents and the averments so made in the
statement of claim. The award must be based on the materials
available on the record and the law. There is reason to only follow the
concept of "beyond reasonable doubt" in such circumstances.
12 Admittedly, there is nothing on record to show that the
Respondents led any evidence to support their claim. The learned
Arbitrator ought to have considered the reply filed by the Petitioners
resisting the claim of the Respondents on all counts. The unilateral
acceptance of the case of the Respondents, in such fashion, resulted
into the Award whereby direction is to provide one flat and/or in the
alternatively, to pay Rs.77,50,000/- with interest towards
compensation and liquidated damages though there was no such
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specific agreement between the parties. The aspect of compensation
and/or liquidated damages means supporting evidence and material.
It is necessary for the party one who claims such compensation and
liquidated damages to show how they suffer loss and the basis for
claiming such damages, apart from proving the proved default by the
other side. Mere averments itself are not sufficient. The Arbitral
Tribunal ought to have considered the averments as well as the
documents placed on record and the basis for arriving at and/or
granting such compensation for the first time in the present facts and
circumstances of the case.
13 The learned Arbitrator has in fact noted the pendency of Appeal
No.100/2008 before the higher forum under the Consumer Protection
Act. In National Seeds Corporation Limited v. M.
Madhusudhan Reddy and another,1 , the Supreme Court has
reiterated that arbitration proceeding is an additional remedy, when it
comes to selecting between the Consumer Act and the Arbitration Act.
The remedy under consumer Act as chosen already and as the
complaint of the Respondents was dismissed for same contract and the
cause and the Appeal is pending, the award so passed therefore also
1 (2012) 2 SCC 506
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bad in law. The competent consumer court has already rejected the
complaint of the Respondents. The Arbitrator, ought not to have
decided the arbitration petition in such fashion. The Award is
perverse. The Supreme Court has clarified that such proceeding is
permissible though there exists arbitration clause. Therefore, even at
this stage of passing of Award, the dispute/conflict so raised was
pending before the judicial authority between the parties arising out
of the same contract towards the same, still proceeded with the matter
and passed the award without giving basic opportunity of any kind to
the other parties. The award is against the principles of natural
justice. It is necessary to note that the Petitioners, as recorded
above, deliberately not attended the arbitration proceedings basically
for the reason that the proceedings so initiated and the way in which
the Arbitrator was appointed and proceeded further itself was
contrary to the settled principles of arbitration law. I am not inclined
to accept that the Petitioners deliberately not participated in the
arbitration proceedings. The case is illegal inception and/or
invocation of the arbitration proceedings itself. The Respondents
have already invoked judicial proceedings to recover their amount and
the amount was refunded long before, and, therefore, there was no
arbitrable dispute pending at the relevant time. The learned
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Arbitrator, knowing fully the case of the Petitioners, proceeded further
and has passed the impugned award which, in my view, is contrary to
the provisions of the Arbitration Act, Evidence Act, Code of Civil
Procedure apart from the principle of natural justice.
No deliberate non-participation.
14 Admittedly, the Arbitrator is not party in the present
proceedings.
15 In a given case, the Petitioner would have participated in the
arbitration proceedings and resisted the claim in all respects. The
Arbitrator would have passed the appropriate order. But in this case,
as recorded above, the Petitioners having made their position clear in
writing and had resisted every steps taken by the Respondents
including the steps taken by the Arbitrator, who was no one else, but
the Advocate of the Respondents and, therefore, the non-participation,
in no way, can be treated as deliberate action to avoid the settlement
of disputes through the arbitration proceedings. I am inclined to
observe that both the proceedings so initiated and concluded is illegal,
contrary and perverse. The Award so passed is unsustainable and
liable to be quashed and set aside on all counts.
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The cost for the first time in Section 34 Petition by the Court.
16 The learned counsel appearing for the Petitioners submitted that
this is a case where the cost should be awarded as the Petitioners
required to pay the court fee of Rs.75,000/- apart from other
expenses,because of such illegal initiation of the proceedings by the
Respondents.
The learned counsel appearing for the Respondents
resisted the same. He has pointed out that the Award is dated
14.08.2010 and the Petition under Section 34 of Arbitration Act was
filed on 16.11.2010. No further steps were taken to proceed with this
arbitration proceedings immediately. This Court on 9.2.2012 after
removal of office objections by the Petitioners and as matter listed,
issued notice for final disposal. On 23.02.2012, rule was made
returnable. The Petition is now listed for final hearing and, therefore,
there is no question of awarding any costs as prayed. Considering
the fact that though initiation of the arbitration proceedings was not
as per the scheme of Arbitration Act, but non-participation of the
Petitioners and not initiating proceedings within reasonable time, in
my view dis-entitle him to claim the cost of this proceedings as
prayed, because of delay in persuing the present arbitration petition.
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The Respondents in fact have initiated execution proceedings and
even attached some property of the Petitioners. However, now in view
of this order, as Award goes so also all the execution proceedings
arising out of the same. This Court, after considering the averments
of both the parties and though the Petitioners inspite of service failed
to appear before the Arbitrator, but considering the above
circumstances, inclined to quash and set aside the impugned Award
including the cost awarded by keeping all points open for the parties
to initiate and/or continue with their proceedings, if any, therefore
also not awarding the costs as prayed.
17 Resultantly, the following order :
(I) Award dated 14.08.2010 is quashed and set aside and
also the execution proceedings and actions arising out of
it;
(II) The Petition is allowed accordingly. There shall be
no order as to costs.
(ANOOP V. MOHTA, J.)
