Parmeet Singh Chatwal vs Ashwani Sahani
2020 Latest Caselaw 1007 Del

$~9
*      IN THE HIGH COURT OF DELHI AT NEW DELHI
%                               Judgment Pronounced on: 14.02.2020
+      O.M.P. 1445/2014 & I.A.No.22669/2014
       PARMEET SINGH CHATWAL & ORS.                 ..... Petitioners
                        Through    Mr.S.P.Aggarwal,          Mr.Surinder
                                   Kumar and Ms.Jyotsana Gupta,
                                   Advocates
                        versus

       ASHWANI SAHANI                                  ..... Respondent
                   Through            Mr.Pravin Nigam, Advocate

       CORAM:
       HON'BLE MR. JUSTICE JAYANT NATH

JAYANT NATH, J.

1. This petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as „the Act‟) seeking to impugn the award dated 30.06.2014 passed by the learned arbitral tribunal constituted by the Delhi Hindustani Mercantile Association, Arbitration Panel-1, Chandni Chowk, Delhi.

2. Some of the relevant facts, which are apparent from the claim petition filed by the respondent, are that the petitioner concern was purchasing fabrics as per his specifications from the respondent. The respondent raised bills in the name of the Concern M/s Mahima Exports proprietorship of Petitioner No. 1 as required by the petitioner. The respondent also opened an account in the name of the petitioner Concern M/s Mahima Exports during the course of the business in his books of accounts maintained by him during the ordinary course of business. It is stated that as per regular books of

account maintained by the respondent, a balance of Rs.15,52,964/- is still payable from petitioner No.1. It is also claimed that in terms of the invoice and as per business practice, interest @ 24% per annum is payable for delayed payment. A sum of Rs. 11,18,124/- is claimed on account of interest. Petitioner No.3 is said to have issued a cheque on 26.03.2010 for Rs.1,00,000/- for the dues which was returned unpaid. A criminal complaint under Section 138 of the Negotiable Instruments Act is said to have been filed. A legal notice was issued on 13.12.2012 and the arbitration clause was invoked.

3. It is the case of the respondent that in the invoice raised there exists an arbitration clause. The said clause 6 reads as follows:

Clause 6 of the Invoice:

"We are member of Delhi Mercantile Association in case of any dispute its decision is final and binding for both the parties."

4. I may note that there appear to be two sets of different invoices used by the respondent. Another set of invoice has another alleged arbitration clause, namely, clause 7 which reads as follows:-

"Clause 7 of the Invoice:

All disputes regarding this invoice will be settled by Delhi Hindustani Mercantile Association and will be binding on both parties."

5. Based on this clause, the respondent sought to initiate arbitration proceedings between the parties and requested the Delhi Mercantile Association to take appropriate steps. The Delhi Mercantile Association nominated the arbitral tribunal, namely, three member arbitral tribunal. The arbitral tribunal has now passed the impugned award.

6. The petitioner appeared before the learned arbitral tribunal and filed his written statement. Three issues were framed by the learned arbitral tribunal which are as follows:

"1. Whether there is arbitration agreement between plaintiff and Defendants?

2. Whether Plaintiff is entitled to recover his claimed amount along with interest from the Defendants, if yes, at which rate of interest?

3. Relief."

7. The award notes that the respondent has produced various challan and bills. The challan and bills bear the signatures of the petitioner. It also notes that the respondent filed a computer sheet of his account from the year 2008- 2009 to 2012-2013 as evidence, the respondent has shown unpaid a balance of Rs.15,52,964/-. As the petitioners were not appearing regularly before the learned arbitral tribunal, the defence of the petitioners was struck off on 15.02.2014. The arbitral tribunal also notes that the petitioners have filed court proceedings (presumably orders of court) where they have stated that they are not appearing before the learned arbitral tribunal whereas they have actually been appearing before the learned arbitral tribunal (i.e. have made a wrong statement). The learned arbitral tribunal, therefore, concludes that the petitioners are misleading and passing time. The arbitral tribunal assumed the claim of the respondents to be true. Accordingly, an award was passed in favour of the respondents for Rs.15,52,964/- alongwith interest of Rs.11,18,124/- from (i.e. upto) 01.02.2013 @ 24% per annum and further interest @ 15% per annum from 02.02.2013 till the date of realisation.

8. I have heard the learned counsels for the parties.

9. The learned counsel for the petitioner assails the award on the following grounds:

i) He submits that there is no arbitration agreement between the parties. The clause in the invoice being Clause 6 is not an arbitration clause. He relies upon the judgments of this court in the case of Kailash Nath Agarwal v. M/s Aaren Exports & Ors., 2009 SCC Online Del 3691 and Taipack Ltd. & Ors. V. Ram Kishore Nagar Mal, (2007) 3 Arb.LR 402 Delhi to support his submission.

ii) He also submits that the claim of the respondent was barred by limitation. He submits that the bills in question relied upon by the respondent whose recovery payment was sought were raised in 2008-2009. The Arbitration was at best invoked on 13.12.2012. Hence, the claim is barred by limitation.

iii) He further submits that there is misjoinder of parties in the present case. He submits that petitioners No.1 to 3 have needlessly been added as parties whereas the invoice was raised only on the Concern M/s Mahima Exports. He also submits that the learned arbitral tribunal has also passed the award against all the three entities with complete non-application of mind.

10. The learned counsel for the respondent reiterates that the clause in question is an arbitration clause. He submits that in each of the invoices this clause exists. He further submits that all the invoices have been duly signed by the petitioner. In some of the invoices even rubber stamp of the petitioner has been affixed binding the petitioner to the terms.

On the issue of limitation the learned counsel for the respondent submits that the last payment, was made by the petitioner on 02.02.2010 as

is evident from the statement of account. Hence, he submits that the claim is within limitation.

He further submits that the petitioner‟s firm namely M/s Mahima Exports had been shut down and all the business has been taken over by petitioner No.2 company and hence, all the petitioners have been impleaded as parties.

11. I will now deal with the submissions of the learned counsel for the petitioner. So far as the first plea is concerned i.e. there is no arbitration clause, the relevant arbitration clauses being clause No. 6 and clause No.7 (different invoices have difference clauses) read as follows:

"Clause 6 of the Invoice:

We are member of Delhi Mercantile Association in case of any dispute its decision is final and binding for both the parties."

"Clause 7 of the Invoice:

All disputes regarding this invoice will be settled by Delhi Hindustani Mercantile Association and will be binding on both parties."

12. Hence, as per the clauses, all the disputes regarding the invoice will be settled by the Delhi Hindustani Mercantile Association and will be binding on both the parties. Would these clauses constitute an Arbitration Clause?

13. The learned Arbitral Tribunal dealt with the said issue as follows:-

"On 17.08.2013 Plaintiff has given his oath by evidence, whereas Defendants also remained absent on 17.08.2013 an plaintiff has given his evidence by oath, in which Plaintiff has produced various challan bill and books, Challan and bills bears

signature of the Defendants on the receipt of goods and on the challan and bills of Plaintiff section (clause) of Delhi Hindustani Mercantile Association is printed and section of interest 24% per annum is also printed. Photocopies of bills and challans are annexed with the suit and returned after seeing the original. Thus there is arbitration of the association between Plaintiff and Defendants i.e. we the Arbitrator Penal-1 have all right to hear and decide the case. Thus first issue goes in favour of the plaintiff."

14. Hence the learned Arbitral Tribunal based on the clause in the invoice has concluded the same to be an arbitration agreement. No reasons are given as to how the same can be construed as an arbitration agreement.

15. I may look at the legal position in this regard.

16. Section 7 of the Act defines an arbitration agreement as follows:-

"7. Arbitration agreement. --

(1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in--

(a) A document signed by the parties;

(b) An exchange of letters, telex, telegrams or other means of telecommunication (including communication through electronic means) which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract."

17. The Supreme Court in the case of Mahanagar Telephone Nigam Ltd. vs. Canara Bank & Ors., AIR 2019 SC 4449 on the existence of a valid arbitration agreement held as follows:-

"9.2. The arbitration agreement need not be in any particular form. What is required to be ascertained is the intention of the parties to settle their disputes through arbitration. The essential elements or attributes of an arbitration agreement is the agreement to refer their disputes or differences to arbitration, which is expressly or impliedly spelt out from a clause in an agreement, separate agreement, or documents/correspondence exchanged between the parties.

9.3. Section 7(4)(b) of the 1996 Act, states that an arbitration agreement can be derived from exchange of letters, telex, telegram or other means of communication, including through electronic means. The 2015 Amendment Act inserted the words "including communication through electronic means" in Section 7(4)(b). If it can prima facie be shown that parties are ad idem, even though the other party may not have signed a formal contract, it cannot absolve him from the liability under the agreement.

9.4. Arbitration agreements are to be construed according to the general principles of construction of statutes, statutory instruments, and other contractual documents. The intention of the parties must be inferred from the terms of the contract, conduct of the parties, and correspondence exchanged, to ascertain the existence of a binding contract between the parties. If the documents on record show that the parties were ad idem, and had actually reached an agreement upon

all material terms, then it would be construed to be a binding contract.

The meaning of a contract must be gathered by adopting a common sense approach, and must not be allowed to be thwarted by a pedantic and legalistic interpretation.

9.5. A commercial document has to be interpreted in such a manner so as to give effect to the agreement, rather than to invalidate it. An „arbitration agreement‟ is a commercial document inter partes, and must be interpreted so as to give effect to the intention of the parties, rather than to invalidate it on technicalities.

9.6. In Khardah Company Ltd. v. Raymon and Co. (India) Pvt. Ltd., this Court while ascertaining the terms of an arbitration agreement between the parties, held that:

"If on a reading of the document as a whole, it can fairly be deduced from the words actually used herein, that the parties had agreed on a particular term, there is nothing in law which prevents them from setting up that term. The terms of a contract can be expressed or implied from what has been expressed. It is in the ultimate analysis, a question of construction of the contract."

(emphasis supplied)

9.7. In interpreting or construing an arbitration agreement or arbitration clause, it would be the duty of the court to make the same workable within the permissible limits of the law. This Court in Enercon (India) Ltd. v. Enercon GMBH, held that a common sense approach has to be adopted to give effect to the intention of the parties to arbitrate the disputes between them. Being a commercial contract, the arbitration clause cannot be construed with a purely legalistic mindset, as in the case of a statute."

18. Similarly, the Supreme Court in the case of K.K.Modi vs. K.N. Modi & Ors., (1998) 3 SCC 573 spelt out the attributes that must be present in an agreement to be construed as an arbitration agreement as follows:-

"17. Among the attributes which must be present for an agreement to be considered as an arbitration agreement are:

(1) The arbitration agreement must contemplate that the decision of the tribunal will be binding on the parties to the agreement,

(2) that the jurisdiction of the tribunal to decide the rights of parties must derive either from the consent of the parties or from an order of the court or from a statute, the terms of which make it clear that the process is to be an arbitration,

(3) the agreement must contemplate that substantive rights of parties will be determined by the agreed tribunal,

(4) that the tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal owing an equal obligation of fairness towards both sides,

(5) that the agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law and lastly,

(6) the agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal.

18. The other factors which are relevant include, whether the agreement contemplates that the tribunal will receive evidence from both sides and hear their contentions or at least give the parties an opportunity to put them forward; whether the wording of the agreement is consistent or inconsistent with the view that the process was intended to be an arbitration, and whether the agreement requires the tribunal to decide the dispute according to law."

19. In Punjab State vs. Dinanath,(2007) 5 SCC 28 the Supreme Court was dealing with a clause which reads as follows:-

"1. ...... "Any dispute arising between the department and the contractor/society shall be referred to the Superintending Engineer, Anandpur Sahib, Hydel Circle No. 1, Chandigarh for orders and his decision will be final and acceptable/binding on both the parties"

20. Based on the above clause, the Supreme Court held as follows:-

"8. A bare perusal of the definition of arbitration agreement would clearly show that an arbitration agreement is not required to be in any particular form. What is required to be ascertained is whether the parties have agreed that if any dispute arises between them in respect of the subject-matter of the contract, such dispute shall be referred to arbitration. In that case, such agreement would certainly spell out an arbitration agreement. (See Rupmani Bai Gupta v. Collector). However, from the definition of the arbitration agreement, it is also clear that the agreement must be in writing and to interpret the agreement as an "arbitration agreement" one has to ascertain the intention of the parties and also treatment of the decision as final. If the parties had desired and intended that a dispute must be referred to arbitration for decision and they would undertake to abide by that decision, there cannot be any difficulty to hold that the intention of the parties was to have an arbitration agreement, that is to say, an arbitration agreement immediately comes into existence.

10. We have already noted Clause 4 of the Work Order as discussed hereinabove. It is true that in the aforesaid Clause 4 of the Work Order the words "arbitration" and "arbitrator" are not indicated; but in our view, omission to mention the words "arbitration" and "arbitrator" as noted herein earlier cannot be a ground to hold that the said clause was not an arbitration

agreement within the meaning of Section 2(a) of the Act. The essential requirements as pointed out herein earlier are that the parties have intended to make a reference to an arbitration and treat the decision of the arbitrator as final. As the conditions to constitute an "arbitration agreement" have been satisfied, we hold that Clause 4 of the Work Order must be construed to be an arbitration agreement and dispute raised by the parties must be referred to the arbitrator. In the case of K.K. Modi v. K.N. Modi, (1998) 3 SCC 573, this Court had laid down the test as to when a clause can be construed to be an arbitration agreement when it appears from the same that there was an agreement between the parties that any dispute shall be referred to the arbitrator. This would be clear when we read Para 17 of the said judgment and points 5 and 6 of the same which read as under:

5. That the agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law: and lastly

6. Agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when reference is made to tribunal.

21. In this context reference may also be had to a judgment of the Division Bench of this Court in Scholar Publishing House Pvt. Ltd. vs. Khanna Traders, 2013 (5) ILR (DEL) 3343. That was a case also where invoices contained a stipulation having an arbitration clause. The court accepted the clause to be an arbitration agreement holding as follows:-

"9. The Court also notices that Section 7 of the Act does not compel the parties to adhere to any particular form of agreement or document. An arbitration agreement can be inferred through a series of correspondence, or even on demur

of one of the parties to an arbitration proceeding, who can otherwise object to it, on the ground of absence of agreement; if such party does not urge the contention in the reply to claim, the arbitration agreement is deemed to exist.

10. In the present case, there is a wealth of material in the form of more than a decade of commercial relationship during which identically phrased invoices containing the arbitration stipulation were accepted and acted upon. It is not the appellant's case that the disputed invoices were the only documents containing such stipulations, which were freshly introduced. Having regard to these circumstances, the court is of opinion that there is no merit in the appeal; it is therefore dismissed along with pending applications without any order as to costs."

22. The legal position that follows is that what is required to be ascertained is the intention of the parties to settle their disputes through arbitration. The essential attribute of an arbitration agreement is that it must be expressly or impliedly spelt out from a clause in the agreement that there is an agreement to refer their disputes/differences to arbitration.

23. I may only note that on facts the learned Arbitral Tribunal in the Award does not record any finding of fact regarding the intention of parties to agree to settle their disputes through arbitration. The award merely concludes the existence of an arbitration clause without giving any reasons.

24. For the purpose of adjudication of the issues raised by the petitioner, I may now look at some of the facts of this case. I may look at one of the invoices which contains the Arbitration Clause and which reads as follows:-

25. A perusal of the above invoice shows that it is not clear as to whether the petitioner who is the proprietor of the said Mahima Exports has signed the invoice or it has been signed on his behalf by some other entity. That

apart, the manner of signing indicates that the person is only signing receipt of the goods rather than agreeing to the arbitration agreement between the parties. In my opinion, the manner in which the signatures have been affixed on the invoice does not indicate an intent on the part of the petitioner agreeing to settle their disputes through arbitration.

The so called Arbitration Clause is reproduced in a small font at the bottom of the invoice. It is doubtful if the petitioner even noticed that he was signing a document which has an Arbitration Clause. It is not possible to conclude that the parties were ad idem.

Further I may note that as per the said alleged arbitration clause, the disputes are to be settled by Delhi Hindustani Mercantile Association. The Association claims to be registered presumably under the Societies Registration Act. It has to act through authorised persons for the purpose of conducting arbitration. There is nothing to show the composition or status of this Association. There is nothing to show how the arbitral tribunal will be constituted by the said Delhi Hindustani Mercantile Association. There is no consensus indicated in the arbitration clause of the composition of the arbitral tribunal.

In my opinion, apart from the fact that there is no consensus for Arbitration, the clause itself is vague. It is not possible to accept the plea of the respondent that the parties have agreed to refer the disputes to arbitration of the said Delhi Hindustani Mercantile Association. Hence, the findings of the learned Arbitrators in the impugned order are clearly erroneous and contrary to the settled legal position.

26. Reference in above context may also be had to the judgment of the

Supreme Court in the case of Food Corporation of India vs. National Collateral Management Services Limited (NCMSL) (MANU/SCOR/45612//2019). In that case the Court was looking at the following arbitration clause:-

"3 The relevant clause in the agreement dated 13.04.2007 reads thus:

9. principal and Agent either party can terminate the Agency Agreement by way of giving 3(three) months notice to the other.

This Agency Agreement may be executed in duplicate by the FCI/Principal and agent, and each of the said copy shall be deemed to be an original and retained by the FCI/Principal and the agent, and such counter parts together shall constitute one and the same instrument. Any dispute between the parties arising out of this agreement or pertaining to any matter which is subject matter of this Agency Agreement shall be referred to the Chairman and Managing Director of F.C.I./Principal for settlement and whose decision shall be final and binding on the FCI/Principal and the agent"

On the aforenoted arbitration clause the Supreme Court held as follows:-

"6. After hearing counsel for the parties, we have no manner of doubt that the above referred clauses in Agreements dated 13.04.2007 and 04.01.2008 respectively, merely predicate that the dispute shall be referred to Chairman and Managing Director of F.C.I./Principal for settlement whose decision shall be final and binding on both F.C.I./Principal and the Agent. Such agreement cannot be construed as an arbitration agreement, keeping in mind the exposition of the three Judge Bench decision of this Court in P. Dasaratharama Reddy Complex vs. Government of Karnataka & Anr. reported in (2014) 2 SCC 201. In paragraph 27 of the said

decision this Court observed thus:-

27. To the aforesaid proposition, we may add that in terms of Clause 29(a) and similar other clauses, any dispute or difference irrespective of its nomenclature in matters relating to specifications, designs, drawings, quality of workmanship or material used or any question relating to claim, right in any way arising out of or relating to the contract designs, drawings etc. or failure on the contractor‟s part to execute the work, whether arising during the progress of the work or after its completion, termination or abandonment has to be first referred to the Chief Engineer or the Designated Officer of the Department. The Chief Engineer or the Designated Officer is not an independent authority or person, who has no connection or control over the work. As a matter of fact, he is having over all supervision and charge of the execution of the work. He is not required to hear the parties or to take evidence, oral or documentary. He is not invested with the power to adjudicate upon the rights of the parties to the dispute or difference and his decision is subject to the right of the aggrieved party to seek relief in a Court of Law. The decision of the Chief Engineer or the Designated Officer is treated as binding on the contractor subject to his right to avail remedy before an appropriate Court. The use of the expression „in the first place‟ unmistakably shows that non-adjudicatory decision of the Chief Engineer is subject to the right of the aggrieved party to seek remedy. Therefore, Clause 29 which is subject matter of consideration in most of the appeals and similar clauses cannot be treated as an Arbitration Clause. (emphasis supplied)"

27. In this context, I may also look at a judgment of a Coordinate Bench

of this court in the case of Taipack Ltd. & Ors. V. Ram Kishore Nagar Mal (supra) where the court was interpreting an arbitration clause which was printed on the invoice and stated as follows:-

"In case of any dispute the judgment of the Tribunal of any other authority appointed by the Paper Merchants Association (Regd.) Delhi will be final and binding."

28. This court had held that the aforesaid clause is not an arbitration clause. It held as follows:-

"20. The signature by the petitioners agent on the respondents copy of the invoice cannot tantamount to acceptance of the respondents so called offer for arbitration. The signatures in such a situation were evidently an acknowledgment of receipt of the goods and nothing more. There is another aspect of the so- called Arbitration Agreement contained in condition No. 4 of the Respondents invoice. The said condition in the invoice firstly does not use the expression 'arbitration' or 'arbitrator'. Secondly, the Respondent does not even make a reference to the "Constitution and Regulations" of the Paper Merchants Association (Regd.), Delhi. Consequently, it is difficult to accept that the Petitioner ever became aware of, or agreed to refer its dispute with the Respondent and relation to the contract in question to arbitration by the Paper Merchants Association (Regd.), Delhi. The condition No. 4 appears to be incomplete and rather vague. Pertinently, Regulation XXX of the Paper Merchants Association states that the clause, above clause No. 2 in bold words, has to be printed by the Merchant on its invoice, for it to bind the outsider. However, what is printed by the Respondent on its invoice as condition No. 4 is nowhere close to the boldly printed text in Regulation XXX. It also appears that the arbitration contemplated in Regulation XXX is in respect of disputes of non-payment "between member to member or member to outsider". It is not in respect of disputes of non-payment from an outsider and a member, which is the case in hand. In response to the invoice sent by the respondent with the condition No. 4 as aforesaid, there was no exchange of

letters, telegrams or any other means of telecommunication in writing from the side of the petitioner to the respondent where from the consent of the petitioner to the conditions contained on the reverse of the invoice could be inferred."

29. The above judgments would support the finding recorded above, namely, that the signatures affixed on the invoice are only the acknowledgement of receipt of goods and nothing more. Such a clause would not be an Arbitration Agreement. The Parties were not ad idem. As there is no Arbitration Agreement, the Award and the Proceedings to that extent are vitiated.

30. Apart from the above, there is another reason as to why the award is illegal, vitiated and contrary to public policy of India. The other issue which has been raised by the learned counsel for the petitioner pertains to the issue of limitation. The petitioner has filed his running statement of account, which is for the period 01.04.2008 to 26.06.2010. The statement of account shows a closing balance of Rs.15,52,964/- as outstanding from the petitioner. The last entry of 05.06.2010 is a cheque of Rs.1,00,000/- which has been received and returned unpaid. The respondent claims that the limitation starts running from the said date. The award is silent on the issue of how limitation gets extended by the last entry in the account despite an objection in the reply filed by the petitioner before the learned arbitral tribunal.

31. In the statement of account that is filed by the petitioner, the last bill is raised on 14.09.2009. The arbitration clause was invoked on 13.12.2012. The statement of claim is dated 01.02.2013. The petitioner claims that the limitation period would commence from 07.06.2010 when a cheque of Rs.1

lakh was tendered by the petitioner.

32. I may note that it is only in case the account in question is a Mutual Open and Current Account that the limitation period would commence from the date as claimed by the respondent, namely, 07.06.2010 or thereafter.

33. I may look at as to what would constitute a Mutual Open and Current Account and the applicable limitation period for such an account.

34. Article 1 of Schedule to the Limitation Act, reads as follows: For the balance due on a Three years. The close of the year in which mutual, open and current the last item admitted or account, where there have proved is entered in the been reciprocal demands account; such year to be between the parties. computed as in the account.

35. A Division Bench of this court in the case of Manish Garg vs. East India Udyog Ltd., 2001 (3) AD (Delhi) 493 explained the term Mutual Open and Current Account as follows:-

"6. Account current‟ is an open account between two or more parties or an account which contains items between parties from which the balance due to one of them is, or can be, ascertained, from which it follows that such an account comes under the terms of an open account in so far as it is running, unsettled or unclosed. To this extent, there is no difficulty however the theory upon which the doctrine as Mutual Account rests is that there is a mutual understanding between the parties, either expressed or implied, that they will continue to credit each other until one signifies a contrary intention, when the balance being ascertained, becomes due and payable In Hindustan Forest Company Vs. Lakhand, reported in AIR 1959 SC 1349 the Supreme Court defined Mutual Account as under

"To be mutual there must be transactions on each side creating independent obligations on the other and not merely transactions which create obligations on the one side, those on the other being merely complete or partial discharges of such obligation."

36. A Coordinate Bench of this court in the case of Motilal Oswal Securities Ltd. vs. Rakshank Kapoor, 2019 SCC OnLine Del. 11438 held as follows:-

"43. This Court in Bharath Skins Corporation v. Taneja Skins Co. Pvt. Ltd., 2011 SCC OnLine Del 5523, explained the test of determining the mutuality of the account in the following words:

"13. From the aforesaid observations, it can be deduced that for the creation of an open, current and mutual account, there must be an intention between the parties, either express or implied, which may be deducible from the course of dealings to have mutual dealings, creating reciprocal obligations, independent of each other. A „demand‟ in relation to a matter of account means a „claim for money‟ arising out of a „contractual business relationship‟ between the parties. Where the dealings between the parties disclose a „single‟ contractual relationship, there will be demands only in favor of one party. For instance, where the relationship between „A‟ and „B‟ is that of lender and borrower respectively, „A‟ will have a „demand‟ against „B‟ in respect of every item of loan advanced. But „B‟ can have no demand against „A‟. Where the dealings between the parties disclose „two‟ contractual relationships, there will arise demands in favor of each side against the other. For instance, where „A‟ advances money to „B‟ from time to time as loan, and „B‟ engages „A‟ as his agent for the sale of goods sent by „B‟, there are two contractual relationships between the parties: one, that of lender and borrower and the other, that of principal and agent. „A‟ as creditor may have several demands against „B‟ who as principal may have,

independently, several demands against „A‟. The real test, therefore, to see whether there have been reciprocal demands in any particular case is to see: Whether there is a „dual contractual relationship‟ between the parties."

37. Hence, in a Mutual Open and Current Account transactions have to be on each side. The account between the parties has to disclose two contractual relations which raise demand in favour of each side against the other. There have to be reciprocal demands. A relationship where only one party is incurring obligation which has to be paid by the other party would not be termed as a Mutual Open and Current Account.

38. The present account is an account where only the respondent was supplying goods to the petitioner and debiting the account accordingly. When payments were received from the petitioner, the debit amount was reduced. This is not a Mutual Open and Current Account as the respondent never had any liability to pay the petitioner for any obligation. Clearly, limitation would not commence from the close of the year of proceeding last entry/item in the account as stated by the Respondent.

39. A perusal of the invoices does not show any stipulated date for making payments of the goods supplied. Under Article 14 of the Schedule to the Limitation Act the limitation commences from the date of delivery of the goods where no fixed period of credit is agreed upon. The limitation period is three years from date of delivery of the goods. In these facts the period of limitation would commence on the date of delivery of goods and would expire on the lapse of three years. Extension of limitation under section 18 or 19 of the Limitation Act is not pleaded or urged. In this case the last goods were supplied on 12.09.2009. The limitation for the last goods

supplied expired on 11.09.2012. The invocation of arbitration was done by a notice dated 13.12.2012. The entire claim of the respondent was clearly barred by limitation. When the invocation took place, the Award hence awards a time barred claim to the respondent which is clearly contrary to the Fundamental Policy of Indian Law.

40. There is another aspect of relevance. The admitted position is that the petitioner filed his defence to the statement of the claim, which is apparent from the reading of the award. Despite that on account of the petitioner not appearing in some of the hearings, the learned arbitral tribunal struck off the defence of the petitioner. Having struck of the defence of the petitioner, the learned arbitral records the submission of the respondent that in some court proceedings the petitioner has made a plea that he is not appearing before the learned arbitral tribunal. The learned tribunal in view of this held that they are not satisfied with the objection raised in the reply and dismissed the same. The learned arbitral tribunal then held that "it assumes the claim of the respondent as true" and assuming the same as true passed an award.

41. Under section 25(b) of the Act states that where the respondent fails to communicate statement of defence, the learned arbitral tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations made by the claimant. The said provisio reads as follows:

"25.(b) the respondent fails to communicate his statement of defence in accordance with sub-section (1) of section 23, the arbitral tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations by the claimant[and shall have the discretion to treat the right of the respondent to file such statement of defence as having been forfeited]; and"

42. A perusal of the award would show that the learned Arbitrators hold that as the petitioner has stopped appearing, he has admitted the claim. Relevant para of the Award reads as follows:-

"Thereafter Plaintiff has filed computer sheet of his account from the year 2008-2009 to 2012-13 as evidence. In the year 2012-13 Defendants have shown their balance at Rs.l552964/- and Plaintiff in his suit claimed original amount of Rs. 1552964/-, which we assumed true. Defendants have not paid the amount of the plaintiff under the terms permitted in the bills and till date the amount is outstanding. Whereas in the bills of Plaintiff 24% per annum interest is printed and Plaintiff has also claimed 24% per annum interest in his suit which we admitted as true. Thus issue No.2 is also goes in favour of plaintiff.

Defendants did not give any cooperation in the case and only their advocate appeared on some of the dates and only filed reply (W.S.) but any document or statement of accounts are not filed along with the same, which rejoinder has been filed by the Plaintiff. After the Plaintiff giving evidence on oath, date 26.10.2013 was fixed for cross examination of the plaintiff by Defendants. On 26.10.2013 and 23.11.2013 counsel of the Defendants were present but they only sought time and they were given last date as 14.12.2013 but from date of hearing 14.12.2013 to 15.02.2014, but Defendants did not appeared despite services. Finally defence of the Defendants has been struck off on 15.02.2014. Plaintiff also appeared on the date of hearings on 14.02.2014 and given information in his statements and also filed copy of the court proceedings, in which Defendants says that I have received summons of arbitration proceeding, but I am not appearing there, whereas in the arbitration proceedings counsel of the Defendant are being appeared. It is thus clear that Defendant is misleading and passing the time in any way. Therefore we the Arbitrator Panel are not satisfied with the objections raised in the reply and dismiss the same. We Arbitrator assumed the claim of the Plaintiff as true." (emphasis added)

43. In the present case, the petitioner has filed his defence. He has only stopped appearing. Based on this, the learned arbitral tribunal has treated this failure of the petitioner to appear as an admission of the allegation made by the respondent. Clearly, the award has been passed contrary to the statutory provisions i.e. Section 25 (b) of the Act.

44. The Supreme Court in the case of Associate Builders v. Delhi Development Authority, AIR 2015 SC 620, held as follows:

"42. In the 1996 Act, this principle is substituted by the "patent illegality" principle which, in turn, contains three subheads:

42.1. (a) A contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature. This again is really a contravention of Section 28(1)(a) of the Act, which reads as under:

"28.Rules applicable to substance of dispute.--(1) Where the place of arbitration is situated in India--

(a) in an arbitration other than an international commercial arbitration, the Arbitral Tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;"

42.2. (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality -- for example if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside.

42.3. (c) Equally, the third subhead of patent illegality is really a contravention of Section 28(3) of the Arbitration Act, which reads as under:

"28.Rules applicable to substance of dispute.--(1)-(2)***

(3) In all cases, the Arbitral Tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction."

This last contravention must be understood with a caveat. An Arbitral Tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do."

45. It is clear that there is no arbitration agreement between the parties. Even otherwise, the claim of the petitioner is barred by limitation and the Award to the extent that it ignores this aspect is contrary to the fundamental policy of Indian Law. The award has also been passed contrary to the statutory provision. Accordingly, I set aside the award. The petition is allowed accordingly.

JAYANT NATH, J.

FEBRUARY 14, 2020/v