Satnam Singh vs Nsic
2009 Latest Caselaw 1588 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI


                                            Date of Reserve: April 06, 2009
                                               Date of Order: April 22, 2009

+ OMP 372/1999
%                                                        22.04.2009
    Satnam Singh                                  ...Petitioner
    Through : Mr. L.C. Goyal, Ms. Partibha Kumari and Ms. Jyoti Bansi,
    Advocates

       Versus

       NSIC                                        ...Respondent
       Through: Mr. A.K. Thakur, Mr.R.K. Mishra and Mr. Rajeev Arora,
       Advocates

AND

+ OMP 373/1999
%
    Jaspal Singh                                  ...Petitioner
    Through : Mr. L.C. Goyal, Ms. Partibha Kumari and Ms. Jyoti Bansi,
    Advocates

       Versus

       NSIC                                        ...Respondent
       Through: Mr. A.K. Thakur, Mr.R.K. Mishra and Mr. Rajeev Arora,
       Advocates


       JUSTICE SHIV NARAYAN DHINGRA

1.     Whether reporters of local papers may be allowed to see the judgment?

2.     To be referred to the reporter or not?

3.     Whether judgment should be reported in Digest?


       JUDGMENT

1. By this common order, I shall dispose of the above two petitions

whereby, petitioners have assailed an award dated 8th September 1999

passed by the Sole Arbitrator thereby awarding a sum of Rs.82,77,485 in

favour of Claimant (Respondent herein) along with 24% interest in respect of

the disputes between the parties under the lease agreements dated 22 nd

OMP 372 & 373 of 1999 Page 1 Of 15 February 1993 and dated 9th July 1993.

2. Brief facts relevant for the purpose of deciding these petitions are that

petitioner Satnam Singh had filed applications with the respondent for

obtaining equipments under the Leasing Scheme. These applications of the

petitioner were allowed and respondent agreed for supply of machinery/

equipments under the equipment lease agreements dated 22nd February 1993

and 9th July 1993. The petitioner/ deposited three months rental as interest

free security with the respondent to be refunded on termination or expiry of

the lease agreements after adjusting the outstanding rentals. The lease

agreements dated 22nd February 1993 and 9th July 1993 signed between the

parties created a binding contract between the parties. On the date of lease

agreement of 22nd February 1993, the value of the equipment was

Rs.72,66,900/-. The petitioner Satnam Singh was to pay quarterly lease

amount of Rs.3,63,345/- for a period of five years and thereafter was to pay

the residual value of equipment being Rs.7,56,960/-. Similarly, under lease

agreement dated 9th July 1993 the lease value of equipment was

Rs.13,98,300/- and the quarterly rent was Rs.69,950/-. The petitioner was to

pay 20 quarterly installments of above amount. Petitioner Jaspal Singh stood

guarantor for regular payment of installments by Satnam Singh and handed

over title deeds of his property No.3006 Sector-19 D, Chandigarh with

claimant and created an equitable mortgage in favour of claimant. The

equitable mortgage was created to secure the lease money and to ensure

due performance of contract.

3. After entering into these lease agreements, the petitioner got delivery

of the equipments, however, petitioner failed to abide by the terms of the

OMP 372 & 373 of 1999 Page 2 Of 15 lease agreements and did not adhere to the payment of installments, as

agreed between the parties. The respondent/claimant gave a notice to the

petitioners regarding irregularities in payments of lease rentals and asked the

petitioners to clear all arrears and pay the lease rental regularly. However,

the petitioners showed their financial difficulties and did not pay the lease

money as agreed between the parties. Several cheques issued by the

petitioners to the respondent/claimant towards lease rental got dishonoured

and returned uncashed. The respondent vide a legal notice dated 12th

February 1998 asked the petitioner to clear the arrears along with interest as

agreed upon and demanded a sum of Rs.86,63,007/- i.e. the due amount.

4. The lease agreement contained an arbitration clause according to

which in the event of disputes between the parties, the matter was to be

referred to Arbitrator. The arbitration clause contained in the lease

agreement reads as under:-

31. ARBITRATION: (i) If any dispute or difference arises between the Corporation and the Lessee with regard to the construction, meaning and effect of these presents or any part thereof or any other matter under these presents, interpretation or termination of this agreement, the same shall be referred to the Sole Arbitration of the Chairman of the Corporation or such officer as he may appoint to be the Arbitrator. There would be no objection that the Arbitration is an employee of the Corporation, that he had to deal with the matters to which this agreement relates or that in the course of his duties as an employee of the Corporation he has expressed his views on all or any of the matters in dispute of difference. The award of the Chairman or the officer so appointed by him shall be final and binding on the parties

OMP 372 & 373 of 1999 Page 3 Of 15 hereto this agreement.

(ii) The venue of the arbitration shall be at Delhi or at any other place where Regional offices of the Corporation is situated, at the discretion of the Chairman and the courts at the places of respective Regional offices alone shall have exclusive jurisdiction."

5. The petitioners after receipt of notice from the respondent instead of

clearing the arrears filed a suit at Chandigarh for permanent and mandatory

injunction against the respondent/claimant. The respondent /claimant moved

an application under Section 8 of the Arbitration & Conciliation Act, 1996

telling the Court that the suit was not maintainable and it should stay the suit.

The respondent appointed Shri Rameshwar Datta, Estate Officer in NSIC

Limited, vide letter dated 18th May 1998, as the Arbitrator in terms of the

arbitration clause. The arbitrator so appointed accepted the appointment as

an Arbitrator vide his letter dated 16th June 1998 and declared that he had no

financial or other interest in any of the parties to the disputes. The copy of

the letter dated 18th May 1998 appointing Arbitrator was sent to the

petitioners by the respondent/claimant. The Arbitrator also sent a copy of his

letter dated 16th June 1998 to the petitioners. The Arbitrator appointed by the

respondent proceeded with the claim and passed an award on 8th September

1999 thereby allowing the claims of the claimant. It is this award which is the

subject matter of challenge through these petitions.

6. The petitioners initially filed objections challenging the award on the

ground that there was a fraud played in the appointment of the Arbitrator.

The Arbitrator was appointed by the Claimant/respondent despite the fact

that the suit filed by the petitioners was pending before the learned Civil

Judge, Chandigarh and an application under Section 8 of the Arbitration &

OMP 372 & 373 of 1999 Page 4 Of 15 Conciliation Act made by the Claimant was also pending. Hence, the

appointment itself was illegal and resulted into a fraud. The other ground

taken by the petitioners for challenging the award was that the Arbitrator did

not enter into upon the reference for nearly seven months and this conduct of

the Arbitrator reflected his bias towards the Claimant. The Arbitrator

otherwise met with an accident and became critically ill before 5 th April 1999.

It is submitted that the Arbitrator was not in a position to apply his mind on

20th July 1999 or afterwards i.e. on 8th September 1999. The Arbitrator acted

as per the wishes of the claimant/ respondent and instead of awarding agreed

rate of interest of 18% per annum, awarded interest @ 24% per annum which

shows biased attitude of the Arbitrator. It is pleaded that the whole award

was a fraud because of this.

7. The award has also been challenged on the ground that the Arbitrator

misconducted himself as he had not followed the law and the facts of the

proceeding. After issuing notice for 5th April 1999, the Arbitrator met with an

accident and no proceedings took place on 5th April 1999. Thus the notice

sent prior to 5th April 1999 was meaningless. The arbitral proceedings which

took place on 6th July 1999 were null and void due to this reason and the

petitioners being proceeded ex parte on 20th July 1999, was illegal.

8. The other ground taken by the petitioners is that the lease agreement

and the alleged award were not enforceable as the Arbitrator had lack of

inherent jurisdiction for conducting arbitral proceedings. The subject matter

was situated in Chandigarh and only court at Chandigarh would have

jurisdiction. It is submitted that the petitioner had paid Rs.38,71,500/- to the

respondent No.1 and the same has not been accounted for by the Arbitrator.

OMP 372 & 373 of 1999 Page 5 Of 15 The lease agreements dated 22nd February 1999 and 9th July 1999 were null

and void ab initio and the waste papers because the agreements were totally

one-sided and in favour of the claimant/ respondent No.1 and the petitioners

who had to take machinery on loan were merely asked to sign blank printed

forms in the margin and thus these agreements were not enforceable.

9. The petitioners later on amended their objections so as to bring them

within scope of Section 34. The amended objections/ recasted objections also

mentioned the same grounds little differently. The only additional ground

stated by the petitioners is that the Arbitrator failed to appreciate that there

was no reference before the Arbitrator to be decided. Since the jurisdiction of

the Arbitrator had been challenged, the Arbitrator had no authority to

proceed against the petitioners ex parte. The Arbitrator should have decided

jurisdiction issue first before proceeding further with the reference. The

Arbitrator failed to inform the petitioners about the proceedings dated 6th July

1999 when they were proceeded ex parte. Similarly, the Arbitrator failed to

ensure due service of the proceedings dated 6th July 1999 and 20th July 1999.

One of the objections is that the Arbitration agreements were made under the

Arbitration Act, 1940 so the proceedings initiated under the Arbitration Act,

1996 were illegal. No proceedings under the Act of 1996 could be initiated

without giving a notice under Section 21 read with Section 85 of the Act but

no such notice was given under the Act and the award was, therefore, null

and void. The petitioners also stated that the Arbitrator took into

consideration hypothetical data and gave an award in respect of dues

calculated on approximate basis and the penal charges with effect from 1 st

April 1997 to 31st January 1999 have been wrongly awarded. It is, therefore,

prayed that the award be declared null and void.

OMP 372 & 373 of 1999 Page 6 Of 15

10. A perusal of record of the Arbitrator would show that the Arbitrator sent

a copy of his letter dated 16.6.1998 to the petitioner signifying his

acceptance of appointment as Arbitrator. The petitioner sent him a notice

dated 1st July 1998 through an advocate Mr. Raman Mahajan telling the

Arbitrator and the respondent that a civil suit filed by the petitioners against

the respondent was pending and an application under Section 8 of the

Arbitration & Conciliation Act, 1996 filed by the respondent was also pending.

The respondent/ claimant has lost its right to appoint the Arbitrator,

therefore, the letter dated 18th May 1998 appointing the Arbitrator should be

withdrawn. The Arbitrator was also advised not to accept the reference and

refrain from proceeding with the matter as his appointment as an Arbitrator

was not accepted by the petitioners. However, the respondent after ensuring

about the legal position and after consulting its legal advisors came to

conclusion that the Arbitrator was rightly appointed and the proceedings can

continue and did not withdraw the letter. In the meantime, the petitioner

wrote another letter dated 9th August 1998 to the Arbitrator telling him that

he had financial interest with the respondent therefore he should not act as

arbitrator. He was again told that unless the suit of petitioners was not finally

decided, the Arbitrator should refrain from entering into the reference. The

Arbitrator, however, sent letter dated 11th January 1999 to the petitioners

telling the petitioners that he was not aware of any circumstances which

would debar him from acting as an Arbitrator. He also declared that he had no

financial or other interest with any of the parties and he called upon the

parties to file their claims /counter claim along with documents within 15 days

from the receipt of letter along with list of witnesses. He asked the parties to

remain present either in person or through their attorney on 1 st February

1999 at 4 pm at NSIC Bhawan, Okhla Industrial Estate, New Delhi. In response

OMP 372 & 373 of 1999 Page 7 Of 15 to this letter of 11th January 1999, the petitioner again wrote to the Arbitrator

refusing him to recognize as an Arbitrator and told him that the act of the

Arbitrator in proceeding with the arbitral proceedings and asking for filing

claim/ counter claim amounted to contempt of Court. A copy of reply filed by

the petitioner in the Court of Mr. K.G. Garg, SJIC, Chandigarh also shows that

the petitioners took the same stand before the Civil Judge by alleging that act

of Mr. Rameshwar Datta, Estate Officer accepting reference during pendency

of the suit before the Court, was an act of overreaching the Court.

11. The respondent filed its claim before the Arbitrator. On 23 rd February

1999 i.e. on the date fixed when none appeared for the petitioners. The

Arbitrator again sent a notice to the petitioners that the matter would be

taken up on 5th April 1999. In response to the notice, the petitioners wrote

him a letter of 1st April 1999 telling him that his appointment as Arbitrator

was not acceptable to them. Since a civil suit filed by them was pending at

Chandigarh, he (the Arbitrator) should refrain from proceeding with

arbitration. In the meantime, the learned Arbitrator met with an accident and

for three months could not hold proceedings and he held proceedings on 6th

July 1999. Since the petitioner had made it clear to the Arbitrator that they

would not appear and had written letters to him to this effect, the Arbitrator

proceeded ex parte against the petitioners and fixed the date of evidence of

the respondent as 20th July 1999. A copy of proceedings 6th July 1999 was sent

to the petitioners. The ex parte evidence was taken on record on 20 th July

1999 and the award was pronounced on 8th September 1999.

12. The counsel for the petitioner, though had not taken this objection that

the Arbitrator, an Estate Officer of the respondent's corporation, had already

OMP 372 & 373 of 1999 Page 8 Of 15 retired from service of respondent when he passed the award, but during

arguments, raised this contention. He submitted that the award was vitiated

for this reason alone. The other grounds addressed during arguments are the

same as raised in the objections.

13. A perusal of record of the arbitral proceedings would show that the

petitioners not only had the knowledge about the appointment of the

Arbitrator and the Arbitrator's entering into reference, but the petitioners also

wrote letters to the Arbitrator telling the Arbitrator that he should not act as

Arbitrator and should not enter upon the reference. The petitioners

deliberately did not appear before the Arbitrator nor filed reply to the claim of

the claimant and took the plea that since a suit filed by them was pending in

the Civil Court at Chandigarh, petitioners do not recognize the Arbitrator.

14. Section 8 of the Arbitration and Conciliation Act, 1996 makes it

mandatory for the Court or the judicial authority before which the an action is

brought in a matter, which is the subject matter of an Arbitration agreement,

not to entertain the suit/ petition and to refer the parties to the Arbitration.

Section 8 does not put a bar on the parties from appointing an Arbitrator. A

party that moves an application under Section 8 informing the Court that

there was an arbitration agreement and the suit should not be entertained

and the plaintiff should be sent to Arbitrator, does not loss right to appoint an

Arbitrator under the arbitration agreement. Even during pendency of an

application under Section 8, either party has a right to appoint an Arbitrator in

accordance with the terms of the Arbitration agreement and to proceed

further with the Arbitration. Making of an application under Section 8 does not

amount to stay of the Arbitral proceedings nor does it take away the

OMP 372 & 373 of 1999 Page 9 Of 15 jurisdiction of the Arbitrator to act. The objection taken by the petitioners

regarding jurisdiction of the Arbitrator because of pendency of an application

under Section 8 or because of the pendency of the suit before the civil court

at Chandigarh is a baseless and frivolous objection and cannot be a ground

for setting aside the award.

15. The other objection taken by the petitioners regarding Arbitrator being

an interested party is also baseless. The arbitration agreement as reproduced

above in paragraph 4, shows that at the time of entering into the contract,

the petitioner was made aware as to who will be the Arbitrator. The petitioner

has failed to bring forth any fact which would show that the Arbitrator was

biased or he had not acted impartially or he had any interest in the subject

matter. Merely because the Arbitrator was an employee of the

respondent/claimant would not debar the Arbitrator from acting in the matter,

more so when the arbitration agreement specifically provided about the

identity of the Arbitrator. The petitioner is bound by the arbitration agreement

and the contract between the parties. Therefore, this objection is not

sustainable.

16. The other contention of the petitioner that the petitioner was not

informed of the proceedings and the venue of the arbitration is equally

baseless in view of the correspondence made by the petitioner with the

Arbitrator and with the respondent. The petitioner was very well aware of the

arbitral proceedings and the reference and was also aware of the venue of

arbitration. The petitioner in fact had been writing letters to the Arbitrator at

the same venue. The petitioner deliberately refused to participate in the

Arbitral proceedings and therefore cannot take this objection for setting aside

OMP 372 & 373 of 1999 Page 10 Of 15 the award.

17. The other objection taken by the petitioner is regarding non-issuance of

notice by the Arbitrator after the Arbitrator proceeded ex parte against the

petitioners. This is factually incorrect. The arbitral record would show that a

copy of the proceedings was sent to the petitioners after the petitioners were

proceeded ex parte and the matter was fixed for ex parte evidence. The plea

taken by the petitioners is, therefore, baseless. The petitioner has relied

upon Bal Kishan v. Mohini Finance Co. 2007 V AD (Delhi) 97. This case relied

upon by the petitioner is of no help to the petitioner since the facts and

circumstances of the present case are altogether different. In the present

case, the Arbitrator at every stage informed the petitioners about the

proceedings and the petitioners at every step had been telling the Arbitrator

not to proceed with the matter further and not to commit contempt of Court. I

consider that it was not for the petitioners to decide whether the Arbitrator

was committing contempt of court or not. The petitioners were supposed to

appear before the Arbitrator and file their reply to the claims and contest the

claims. Since the petitioners refused to contest the claims, the petitioners

now cannot take the plea that the proceedings before the Arbitrator stood

vitiated. An ex parte award is a good award where it is passed after due

notice to the respondent and respondent refuses to appear before the

Arbitrator on the plea that he does not submit to the jurisdiction of the

Arbitrator or he does not recognize the Arbitrator to be rightly appointed. An

arbitral award can be set aside under Section 34(2) only where the parties

making an application was not given proper notice of the appointment of the

Arbitrator or of the Arbitral proceedings or otherwise was unable to present

his case. In the present case, the receipt of notice of appointment of the

OMP 372 & 373 of 1999 Page 11 Of 15 Arbitrator is admitted from the correspondence of the petitioners. The receipt

of notice of initiation of the arbitral proceedings is also admitted in view of

the letters written by the petitioners to the Arbitrator asking the Arbitrator not

to proceed further with the arbitration as it would tantamount to contempt of

Court. A party cannot keep on threatening the Arbitrator of contempt of Court

and keep on refusing to appear before the Arbitrator. If such an act is done by

a party then it is done to its own peril. In the present case, the petitioners

kept on threatening that they would not appear before the Arbitrator, the

petitioners did so at their own peril. They cannot be allowed to say that they

were not having proper notice. A willful abstention from the arbitral

proceedings does not amount to non service of notice. A willful abstention

from arbitration proceedings would only mean that the petitioners have to be

prepared to suffer the consequence of willful abstention. The case of the

petitioners is also not covered under 'otherwise unable to present his case'.

The petitioners deliberately did not appear before the Arbitrator on the

ground that the petitioners' suit was pending before the Civil Court,

Chandigarh while the petitioners were very well aware that the Civil Court at

Chandigarh had not stayed the arbitral proceedings and the Arbitrator was

continuing with the proceedings. The inability to present the case before the

Arbitrator must be such which is not invented or created by the party or is not

carved out for the purpose of attracting the provisions of Section 34(2) for

filing an application to set aside the award. Whether a party was unable to

present his case would depend upon the facts and circumstances of each

case. In the present case, the petitioner had deliberately not appeared before

the Arbitrator and it is not a case where the petitioner was unable to appear

before the Arbitrator.

OMP 372 & 373 of 1999 Page 12 Of 15

18. The petitioners contended that the Arbitrator got retired on 20th

February 1999 while the award was passed on 8th September 1999 thus the

award was a nullity. The petitioner relied upon Union of India v. Jagat Ram

Trehan 1996 (36) DRJ 366 [DB]. In the cited case the Arbitration Clause

specifically provided that the Arbitrator shall cease to act as Arbitrator on

being transferred or vacating the office. The Arbitrator in that case was on

deputation as Arbitrator and during the proceedings he was transferred on

20th November 1990, however, he passed the award on 5th December 1990. In

view of the peculiar arbitration clause wherein it was provided that arbitral

proceedings shall cease, the Court held that in view of this clause, the

Arbitrator had become functuous officio.

19. The circumstances and the facts of the present case are altogether

different from Jagat Ram's case (supra). In the present case, the arbitration

clause did not provide that in case of retirement or transfer, the arbitration

proceedings shall come to standstill. In the present case, the arbitral

proceedings were to be conducted either by the Chairman of the Corporation

himself or he could designate any officer of the Corporation as Arbitrator. The

person he designated was Shri Rameshwar Datta by name. At the time when

he was designated, he was working as an Estate Officer and he entered into

the reference having been appointed as sole Arbitrator under the agreement.

Even if he retired, there was no restrain upon him from continuing to act as

an Arbitrator as the arbitration agreement did not provide that a new

arbitrator had to be appointed in case of retirement or transfer or

relinquishment of office by the Arbitrator. The Court should not interfere in

the arbitration award on such flimsy and whimsical grounds. The basic

approach of the Courts towards arbitration award is to support rather than

OMP 372 & 373 of 1999 Page 13 Of 15 destroy it merely on some technical grounds. The supervisory role of the

Courts is only to ensure that the principles of natural justice are followed and

to see that while making an award, law of the land is followed. The scheme

and purport of the Arbitration Act is of keeping the supervisory role of the

Courts at minimum level and an award cannot be set aside on such grounds

as taken by the petitioner in this case. Even if the Arbitrator in this case has

retired, there was no bar on the Arbitrator from completing the award. The

Arbitrator was appointed by name and not by office. Apart from this, the

petitioner had not brought on record any document to show that the learned

Arbitrator had retired before making the award. Moreover, this ground has

been taken by the petitioners only during arguments. The petitioner has not

taken this ground in the objections.

20. The petitioners' other contention that the Arbitration Act, 1940 was

applicable is not tenable since in this case, the arbitration was invoked after

coming into force of the new Act and only provisions of Section 1996 would

apply and not the provisions of Act of 1940 would apply. The petitioner

himself has filed the instant petition under Section 34 of the Arbitration &

Conciliation Act, 1996 and he has not filed objections under Section 1940 Act.

Thus, this objection is a frivolous and baseless objection.

21. The award passed by the Arbitrator is based on evidence and facts.

Except for the interest part, which seems to be little on the higher side, I find

nothing wrong in the award. The Arbitrator has granted 24% interest on the

award amount from the date of claim till realization. In the year 1999, the

interest regime was in that region. The bank lending rate which used to be

around 18 to 21 % in 1998-99. The Arbitrator awarded this rate of interest

OMP 372 & 373 of 1999 Page 14 Of 15 keeping in mind the interest regime at that time. However, I consider that

looking into the fact that the interest rates changed drastically afterwards, it

would be appropriate if the rate of interest as awarded by the Arbitrator is

reduced from 24% per annum to 12% per annum from the date of passing of

the award till realization. It is ordered accordingly.

22. With above modification in the interest part, the other objections raised

by the petitioner are hereby dismissed. The petition stands disposed of. In the

facts and circumstances, the parties are left to bear their own costs.

April 22, 2009                                  SHIV NARAYAN DHINGRA J.
rd




OMP 372 & 373 of 1999                                            Page 15 Of 15