Delhi High Court
Rajender Jaina vs Prem Bhatia on 11 December, 2014
$~10
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ FAO 251/2014
Decided on 11th December, 2014
RAJENDER JAINA ..... Appellant
Through: Mr. Rajesh Aggarwal, Adv.
versus
PREM BHATIA ..... Respondent
Through: Mr. Rishi Manchanda, Adv.
CORAM:
HON'BLE MR. JUSTICE A.K. PATHAK
A.K.PATHAK, J. (Oral)
1. Respondent entered into a Memorandum Of Understanding dated 25 th
December, 2006 (MOU) with the appellant for making an audio and video
album. Terms and conditions were stipulated in the said MOU, which
included an arbitration clause. Disputes arose between the parties regarding
execution of work. Appellant invoked arbitration clause and nominated Mr.
B.P. Lathwal as sole Arbitrator to adjudicate the disputes. Appellant filed
statement of claim before the arbitrator. Respondent filed reply as well as
counter claim. However, respondent challenged the jurisdiction of arbitrator
to adjudicate the disputes, inter alia, on the ground that arbitrator was
nominated without his consent, thus, such an appointment was invalid.
However, arbitrator proceeded with the matter and gave his Award on 10 th
September, 2012 in favour of the appellant.
2. Respondent challenged the award by filing an application under
Section 34 of the Arbitration & Conciliation Act, 1996 before the trial court,
which has been allowed by the order impugned in this appeal. Aggrieved
by this order appellant has preferred this appeal.
3. Respondent contended before the trial court that Arbitrator was not
nominated in terms of Clause 10 of the Memorandum of Understanding
which required prior consent of the respondent. Appellant had appointed
Mr. B.P. Lathwal as Arbitrator without seeking consent of the respondent,
thus, Arbitrator had no jurisdiction to enter upon reference and render
award. This contention has been accepted by the trial court.
4. Relevant it would be to refer to and rely upon the arbitration clause
which reads as under :-
"10. All disputes and questions in connection with the present
Memorandum of Understanding arising between the parties or
the assignees and successor in interest, shall be referred to the
Arbitrator to be decided by the First Party after taking the
consent of the second party, to be conducted at New Delhi."
5. A perusal of aforesaid clause makes it clear that arbitrator could have
been nominated by the appellant (first party) but only after taking consent of
the respondent (second party). Admittedly, no prior consent of respondent
was taken by appellant. Appellant alleges that a letter was sent to
respondent stating therein that appellant intended to appoint Mr. B.P.
Lathwal as sole arbitrator but the same was not replied by the respondent. In
my view, this would not amount to respondent having consented to the
appointment of arbitrator named by the appellant in the notice, inasmuch as
arbitration clause in no uncertain terms provides prior consent. Language
used is "after taking the consent". Merely because letter was not replied will
not mean that implied consent can be inferred.
6. Learned counsel for the appellant has vehemently contended that
respondent participated in the arbitral proceedings, filed counter claim,
inasmuch as, paid fee of the arbitrator which amounts to „abandonment‟ of
this condition, if not „waiver‟ of the objection to the appointment of the
arbitrator named by the appellant. Thus, trial court has erred in holding that
arbitrator had no jurisdiction to enter upon the reference and pronounce
„Award‟.
7. It may be noted here that respondent had objected to the jurisdiction
of the Arbitrator on the ground that he was named without the consent of the
respondent and the appointment was in violation of the arbitration clause.
Inspite of this, arbitrator continued to proceed with the proceedings without
rendering finding on this point. In the facts of this case, it cannot be said that
respondent had „abandoned‟ the challenge to the jurisdiction of the
arbitrator. The objection was taken by the respondent in reply, at the first
available opportunity. In the similar facts and circumstances, a learned
Single Judge of this Court in Rajesh Batra vs. Ranbir Singh Ahlawat 2011
(4) Arb. LR 371 (Delhi), has held that participation of the respondent before
the arbitrator would not amount to implied consent given to the appointment
of arbitrator by the opposite party. In the said case also, arbitrator was to be
nominated with the mutual consent of the parties. However, claimant
appointed the arbitrator without seeking consent of respondent. It was held
that arbitrator having not been appointed in terms of the arbitration clause
had no jurisdiction to enter upon the reference and to render award. It was
held that award was patently illegal having been made by the arbitrator
without jurisdiction. In paras 8 to 10 it has been held as under :-
"8. It is well settled that an arbitrator derives his authority
from the arbitration agreement. Once the arbitrator had noticed
that his nomination had been only made by the
respondent/claimant, without the consent of the petitioner,
before entering upon the reference and issuing notices to the
parties, or taking any steps in the arbitration proceedings, he
should have ensured that the petitioner also gave his consent to
his nomination as the arbitrator. The arbitrator derives no
authority or jurisdiction to even issue notices to the parties,
either to file their statement of claim, or statement of
defence/counter-claim, or to appear before him, till his
appointment has been made strictly in terms of the arbitration
agreement.
9. The fact that the petitioner had put in appearance on a
couple of sittings before the so-called arbitrator, to my mind,
makes no difference, keeping in view the express language of
Section 16(2) of the Act which permits the raising of a plea that
the arbitral tribunal does not have jurisdiction till the statement
of defence has been filed. In this case, the petitioner had raised
the said plea on 07.10.2010 and, admittedly, no statement of
claim had been filed by then.
10. Despite being put to notice that his appointment itself is
without authority and jurisdiction, the arbitrator brazenly
proceeded to conduct the proceedings and passed the impugned
award. If such conduct is not condoned, it will give
encouragement to adoption of such sharp practices and
fraudulent conduct. If the respondent‟s stand were to be
accepted, one or the other party can play havoc by nominating
an arbitrator unilaterally in breach of the agreement, and obtain
an award from the arbitrator, who may not command the
confidence of both the parties. Accordingly, the impugned
award is patently illegal and has been made by the arbitrator
without jurisdiction and the same is accordingly set aside."
8. For the foregoing reasons, I do not find any perversity or illegality in
the impugned order.
9. Appeal is dismissed.
A.K. PATHAK, J.
DECEMBER 11, 2014
ga
