Maharaji Educational Trust & Anr. vs M/S S.G.S. Constructions & ...
2012 Latest Caselaw 845 Del

*       IN THE HIGH COURT OF DELHI AT NEW DELHI


+               O.M.P. 120/2012 & IA Nos. 2411-12/2012


        MAHARAJI EDUCATIONAL TRUST & ANR        ..... Petitioners
                    Through: Mr. A. Sharan, Senior Advocate with
                             Mr. S. Chandrashekhar & Mr.
                             Somesh Chandra Jha, Advocates.

                                     Versus

        M/S S.G.S CONSTRUCTIONS & DEVELOPERS
        PVT LTD                              ..... Respondent

                                     AND

+               ARB.A. 3/2012 & IAs 2408-09/2012

        MAHARAJI EDUCATIONAL TRUST & ANR ..... Appellants
                    Through: Mr. A. Sharan, Senior Advocate with
                             Mr. S. Chandrashekhar & Mr.
                             Somesh Chandra Jha, Advocates.

                                     Versus

        S.G.S CONSTRUCTION & DEVELOPERS
        PVT LTD                         ..... Respondent

        CORAM: JUSTICE S. MURALIDHAR

                                     ORDER

% 08.02.2012

1. Maharaji Educational Trust ('MET') and Dr. P. Mahalingam, its

Chairman and Managing Trustee, have filed OMP No.120 of 2012 under

Sections 14 and 15 of the Arbitration and Conciliation Act, 1996 ('Act')

seeking removal of the sole Arbitrator, who is presently adjudicating the

disputes between MET and the Respondent, M/s S.G.S Constructions &

Developers Private Limited.

2. The same Petitioners have filed Arbitration Appeal No.3 of 2012 under

Section 37 of the Act challenging the orders dated 15.1.2011, 28.2.2011,

30.3.2011, 30.7.2011, 10.9.2011, 28.9.2011, 21.10.2011, 14.11.2011 and

2.12.201 of the learned sole Arbitrator.

3. By this common order, both matters are being disposed of.

4. Mr. Amarendra Sharan, learned Senior counsel appearing on behalf of

the Petitioners, submitted that under a loan agreement dated 20th December,

1995 entered into between HUDCO and MET for a loan of Rs.75.07 crores,

six properties of MET were mortgaged to HUDCO. OA No. 160 of 2002

was filed by HUDCO before the Debt Recovery Tribunal ('DRT') on 20th

August 2002 against MET for recovery of the outstanding loan amount. On

4th May 2007, HUDCO issued a notice under Section 13(2) of the

Securitisation and Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 ('SARFAESI Act'). The DRT allowed OA No.

160 of 2002 permitting HUDCO to recover from MET a sum of Rs.148.08

crores along with interest. Pursuant thereto, a Recovery Certificate ('RC')

was issued by the DRT and the total loan liability of MET was determined

as Rs. 320 crores as on 26th August 2010.

5. The Petitioners state that the Respondent "played fraud upon the

Petitioner herein and deceitfully got an Agreement for Sale dated

26.08.2010 signed from the Petitioner herein with respect to property at Sl.

No. 6 mentioned-above allegedly for Rs.154 Crores only." The property at

'Sl. No. 6' is land admeasuring 63.45 acres situated at Village Akbharpur

Behrampur, Mirjaput and Mithepur, Pargana Loni, Tehsil & District

Ghaziabad (hereafter 'property in question'). The Petitioners claim that the

agreement to sell dated 26th August 2010 entered into between MET and the

Respondent is void ab initio, as it is contrary to law and public policy and

incapable of enforcement.

6. Admittedly, the said agreement contained an arbitration clause. As a

result of the disputes between the parties, arising out of the said agreement,

the Respondent on 8th November 2010 invoked the arbitration clause.

Thereafter, the learned sole Arbitrator entered upon reference. The

Petitioner states that on 15th January 2011 it filed an application under

Section 16 of the Act challenging the jurisdiction of the Arbitrator to

entertain the claim (it is stated that this is numbered as IA No.2). An

application under Section 17 of the Act (IA No. 1) was filed by the

Respondent. Counsel for the Respondent on that date informed the learned

Arbitrator that the Respondent would furnish an undertaking that it would

not alienate the aforementioned property in question.

7. It is contended by Mr. Sharan that the Arbitrator could not have passed

any interim order, much less entertain any claim respecting the property in

question, since it was the subject matter of the proceedings before the DRT

and in respect of which an RC has been issued. According to him, Section

18 of the Recovery of Debts due to Banks and Financial Institutions Act,

1993 ('RDDBFI Act') excludes the jurisdiction of even the civil courts in

relation to matters seized by the DRT. On 2nd May 2011 the Recovery

Officer ('RO') of the DRT issued a demand notice under Sections 25 and 29

of the RDDBFI Act. The Respondent herein then filed its objections before

the RO on 19th May 2011 raising objections to the sale of the property in

question.

8. IA No. 5 of 2011 was filed by the Petitioners before the learned

Arbitrator seeking recall of the interim order dated 15th January 2011 and

other subsequent interim orders. The Petitioners state that neither IAs 1 and

2, nor IA No. 5 have been heard and decided till date. It is submitted that,

however, the learned Arbitrator continued to entertain the applications filed

by the Respondent.

9. On 6th September 2011, the RO passed an order sustaining the objections

raised by the Respondent and directed issuance of sale proclamations with

respect to the five properties of the MET, other than the property in

question. The Petitioners then filed an application on 20th October 2011

before the RO seeking recall of the order dated 6th September 2011. The

Respondent on 21st October 2011 filed IA No. 8 of 2011 before the learned

Arbitrator claiming that the Petitioners had violated the learned Arbitrator's

interim order dated 15th January 2011 read with the interim order dated 15th

October 2011, by filing the aforementioned application before the RO. On

21st October 2011, the learned Arbitrator passed an order directing the

Petitioner MET to seek adjournment before the RO. This direction was

continued by the learned Arbitrator on 14th November 2011.

10. It is stated that the Respondent filed a writ petition in the Allahabad

High Court, Lucknow Bench on 22nd November 2011 for a direction to the

RO not to proceed with the application filed by the Petitioners on 20th

October 2011 till the properties at Sl. No. 1 to 5 were not sold and for

implementation of the RO's order dated 6th November 2011. The Allahabad

High Court passed an interim order on 22nd November 2011 itself. The

Petitioners challenged the said interim order in the Supreme Court, which

stayed the said interim order of the High Court.

11. The submission of Mr. Sharan is that the learned Arbitrator is, in terms

of Section 14(1)(a) of the Act, disabled de jure from performing his

functions as such since the subject matter of the claim before the Arbitrator

is also the subject of the proceedings before the DRT. Under Section 18 of

the RDDBFI Act, read with Section 34 thereof, there was a complete bar on

any other court or authority exercising jurisdiction, power or authority in

relation to a matter pending before the DRT. Secondly, the interim orders

passed by the learned Arbitrator reflected his bias.

12. Mr. Sharan relied on the judgment of the High Court of Gauhati in State

of Arunachal Pradesh v. Subhash Projects and Marketing Limited, 2006

(4) GLT 165 and sought to distinguish the judgment of the Division Bench

of this Court dated 16th May 2011 in Progressive Career Academy Private

Limited v. FIIT JEE Limited 180 (2011) DLT 714. The latter judgment

holds that interference by the Court is not possible at pre-award stage on the

allegation of bias or partiality of the Arbitral Tribunal. The Division Bench

of this Court in the said decision held that "the statute does not postulate

judicial interference in arbitral proceedings till the Award is published,

whereupon Objections can be raised also on the platform of the alleged bias

of the Tribunal. This challenge is possible provided the grievance is

articulated in consonance with Section 13 of the A&C Act."

13. Mr. Sharan submitted that the judgment of the Division Bench of this

Court in Progressive Career Academy Private Limited v. FIIT JEE

Limited did not deal with the remedy provided under Section 14(1)(a) of the

Act but only dealt with the issue of bias of the Arbitrator which is only one

of the grounds urged by the Petitioner in the present case. He commended

for acceptance the judgment of the Division Bench of the Gauhati High

Court in State of Arunachal Pradesh v. Subhash Projects and Marketing

Limited wherein it was observed that the remedy under Section 14(1)(a) of

the Act was independent of the one under Section 13 of the Act and was

"more comprehensive."

14. Referring to the judgments of the Supreme Court in AR Antulay v. R.S.

Nai, (1986) Supp SCC 510 and State of UP v. Synthetics and Chemicals

Limited, (1991) 4 SCC 139, it is submitted by Mr. Sharan that the judgment

of the Division Bench in Progressive Career Academy Private Limited v.

FIIT JEE Limited is per incurium and that if this Court doubted its

correctness, it should refer the matter to a larger bench. Meanwhile, the

proceedings before the learned Arbitrator should be stayed.

15. As regards the Arbitration Appeal No. 3 of 2012, it is submitted that the

numerous interim orders passed by the learned Arbitrator clearly reflect his

bias. Since those orders touched upon the subject matter of the proceedings

pending before the DRT, they were without the authority of law and

deserved to be set aside. A grievance was made that the application Nos.1

and 2 filed by the Respondent and MET respectively way back in January

2011 have not been disposed of till date by the learned Arbitrator.

16. This Court is not inclined to entertain the above pleas for more than one

reason. Section 16 of the Act permits a party to challenge the jurisdiction of

the Arbitral Tribunal by filing an application before such Tribunal. The

words "may rule on its own jurisdiction" occurring in Section 16(1) of the

Act are followed by the word "including". Therefore, the grounds that can

be urged before the Arbitral Tribunal to challenge its jurisdiction is not

limited to those set out in Section 16(1)(a) and (b). It could include the

ground set out in Section 14(1)(a) as well.

17. Under Section 14(1) it is possible for a party to approach this Court "if

a controversy remains concerning any of the grounds referred to in clause

(9) of sub-Section (1) of Section 14." The word "remains" implies that such

a controversy must have been raised before the Arbitral Tribunal and must

remain unresolved prior to approaching the Court.

18. Therefore, the Court would be slow to entertain a plea under Section 14

(1) (a) if the aggrieved party has invoked the provision of Section 16 of the

Act already. The better course in such instance is to await the decision of the

Arbitral Tribunal and abide by the mandate of the statute. If, as in the

present case, the Tribunal has not decided the application, then it can be

persuaded to expedite its decision thereon.

19. As regards the alleged bias of the learned Arbitrator, a remedy is

provided under Section 12(3), read with Section 13 of the Act, the Petitioner

ought not to by-pass that remedy. In the judgment of the Division Bench of

this Court in Progressive Career Academy Private Limited v. FIIT JEE

Limited it was noted that in Pinaki Das Gupta v. Publicis (India)

Communications, 115 (2004) DLT 345, a learned Single Judge of this

Court had taken the view that interference under Section 14 is not warranted

even in the face of allegations of bias of the Arbitrator. In para 13 of the

judgment, the Division Bench took note of the judgment of the Guahati

High Court in State of Arunachal Pradesh v. Subhash Projects and

Marketing Limited. Thereafter, the Division Bench of this Court set out the

provisions contained in Sections 12 to 15 of the Act, analyzed them with

reference to the corresponding provisions in the UNCTRAL Model Law,

and concluded that at the pre-award stage, interference by the Court was not

called for. Consequently, the second ground of the Petitioners, regarding

bias of the learned Arbitrator, cannot be entertained at this stage.

20. This Court is not persuaded to accept the submission of Mr. Sharan that

the judgment of the Division Bench of this Court in Progressive Career

Academy Private Limited v. FIIT JEE Limited is sub silentio or per

incuriam. Consequently, the further submission about referring the matter to

a larger bench need not be considered.

21. The Petitioner having invoked Section 16 of the Act to question the

jurisdiction of the learned Arbitrator should pursue that remedy in

accordance with law. As regards the allegation of bias, as already

mentioned, the Petitioners have a remedy under Section 12, read with

Section 13 of the Act. Consequently, this Court is not prepared to grant any

of the reliefs prayed for in OMP No. 120 of 2012.

22. This Court is not persuaded to hold that the orders challenged in

Arbitration Appeal No. 3 of 2012 themselves reflect any bias of the learned

Arbitrator. Consequently, the appeal is dismissed.

23. However, the learned Arbitrator is requested to dispose of the

applications, IAs Nos. 1, 2 & 5 pending before him within a period of two

months from today.

24. OMP No.120 of 2012 and Arbitration Appeal No. 3 of 2012 are

dismissed in the above terms. All applications stand dismissed.

S. MURALIDHAR, J FEBRUARY 08, 2012 s.pal