Delhi High Court
Shriram Transport Finance Co. ... vs Shri Narender Singh on 13 October, 2022
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 25.07.2022
Judgment pronounced on: 13.10.2022
+ FAO (COMM) 179/2021 and CM APPL. 39706/2021
SHRIRAM TRANSPORT FINANCE CO. LTD. ..... Appellant
Through: Mr Bharat Singh with Mr Suraj K.
Singh and Mr Devesh Gupta,
Advocates.
versus
SHRI NARENDER SINGH ..... Respondent
Through: None.
CORAM:
HON'BLE MR JUSTICE RAJIV SHAKDHER
HON'BLE MS JUSTICE TARA VITASTA GANJU
[Physical Court Hearing/ Hybrid Hearing (as per request)]
JUDGMENT
TARA VITASTA GANJU, J.:
FAO (COMM) 179/2021 & CM APPL. 39706/2021 [Application for
Condonation of Delay]
1. The present Appeal has been filed under the provisions of Section
37(1)(b) of the Arbitration and Conciliation Act, 1996 (hereinafter "the
Act") read with Section 13 of the Commercial Courts, Commercial
Division and Commercial Appellate Division of the High Courts Act,
2015 against the judgment of the learned District Judge dated
17.12.2020 (hereinafter "the Impugned Judgment"). By the Impugned
Judgment, the learned District Judge has allowed the Petition under
Section 34 of the Act and set aside the Arbitral Award dated 16.07.2019
on the following two grounds:
FAO (COMM) 179/2021 Pag e 1 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
(i) There is non-compliance of Section 21 of the Act;
(ii) The Arbitrator did not make the requisite disclosure as is
required under Section 12 of the Act.
1.1 At the outset, it is noticed that the Appeal is wrongly filed under the
provisions of Section 37(1)(b) instead of Section 37(1)(c) of the Act by
the Appellant Company. Accordingly, this Appeal is treated as being
filed under Section 37(1)(c) of the Act.
2. The matter was listed before this Court on 10.11.2021, wherein this
Court recorded as follows:
―5. On being queried, Mr. Bharat Singh, who appears
for the appellant, does not dispute the fact that, the learned
arbitrator has been engaged on earlier occasions by the
appellant.
6. At the request of Mr Singh, list the matter on
14.12.2021.
7. In the meanwhile, Mr Bharat will file the entire
record which was placed before the learned arbitrator. The
record will be duly indexed and paginated.
8. Furthermore, Mr Bharat will file a note, not
exceeding two pages, indicating therein, the ground(s) on
which the appellant wishes to assail the impugned
judgment.‖
2.1 We are informed by the Counsel for the Appellant Company that the
Arbitral record has since been filed and a certificate in that regard has
been placed on record.
2.2 A perusal of the case file, however, shows that the pleadings before the
District Judge have not been filed by the Appellant Company. No
written submissions, as directed on 10.11.2021, have been filed either.
2.3 The matter was listed on 14.12.2021, 12.07.2022, 18.07.2022 and
25.07.2022, when the Counsel for the Appellant Company addressed
FAO (COMM) 179/2021 Pag e 2 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
arguments in support of maintainability of the Appeal. We may clarify
here that, since we have not admitted the Appeal, no notice to the
Respondent has been issued.
3. Since the Appellant Company failed to file the pleadings as filed before
the District Judge, the brief facts of this case have been culled out from
the Impugned Judgement. These are set forth below:
3.1 The Respondent (Petitioner before the District Judge) purchased a
vehicle on loan from the Appellant (Respondent before the District
Judge) (hereinafter "Appellant Company") by a Loan Agreement No.
AZDPRO201040008, dated 16.09.2014 for an amount of Rs.6,00,000/-
(hereinafter "Loan Agreement").
3.2 Owing to disputes between the parties, the vehicle was repossessed on
18.04.2017 and consequently sold by the Appellant Company.
Thereafter, the Appellant Company sent a notice of demand dated
20.09.2018 to the Respondent, demanding a payment of Rs.4,70,248/-
as on 12.09.2018 and mentioning therein that the Arbitration clause
would be invoked on failure of the Respondent to make such payment.
3.3 Subsequently, the Appellant Company, by its letter dated 27.09.2018,
appointed Shri B.L. Garg (Retd. ADJ) as the Sole Arbitrator
(hereinafter "the Arbitrator") to adjudicate the disputes/differences
between the parties. The Arbitrator entered into reference on
11.02.2019 and held hearings on 18.03.2019, 23.04.2019, and
31.05.2019.
3.4 It was contended inter-alia by the Respondent that the Respondent
appeared before the Arbitrator on 18.03.2019 and the case was fixed for
23.04.2019, when the Appellant Company submitted its Statement of
Claim with documents. The matter was thereafter adjourned to
FAO (COMM) 179/2021 Pag e 3 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
31.05.2019 for the Respondent‟s reply/objections. The Respondent
further submitted that on 31.05.2019, he could not reach the venue of
the Arbitration in time and that when he reached the venue, he was
informed by the Arbitrator that the proceedings were closed and that the
outcome of the proceedings would be sent to him by post.
3.5 The Respondent stated that on 20.07.2019, he received the Arbitral
Award dated 16.07.2019 (hereinafter "the Arbitral Award"). The
Respondent further stated that it was only on a perusal of the Arbitral
Award, that the Respondent came to know that ex-parte evidence was
led by the Authorised Representative of the Appellant Company on
04.07.2019 and the matter was adjourned to 16.07.2019 for final
arguments and pronouncement of the Arbitral Award. The Arbitrator
awarded a sum of Rs.4,70,248/- (Rupees Four Lakh Seventy Thousand
Two Hundred and Forty Eight) along with interest at the rate of 18%
per annum and a sum of Rs.12,000/- (Rupees Twelve Thousand) as
costs of these proceedings to the Appellant Company in terms of the
Arbitral Award.
3.6 The Respondent filed a Petition under Section 34 of the Act for setting
aside the Arbitral Award. It was stated by the Respondent that the
Arbitrator did not give him any opportunity nor send him a notice or
information of the dates of 04.07.2019 and 16.07.2019 and that the
proceedings were conducted by the Arbitrator in a hasty manner. It was
further contended that, upon enquiries made by the Respondent
thereafter, it was revealed that the Arbitrator is a frequent Arbitrator for
the Appellant Company and has passed similar ex-parte
award(s) in favour of the Appellant Company. It was argued by the
Respondent that all these circumstances raise a doubt on the conduct of
FAO (COMM) 179/2021 Pag e 4 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
the Arbitrator and coupled with the non-disclosure as mandated under
Section 12 of the Act, that the Arbitrator is a frequent stock Arbitrator
for the Appellant Company is a ground to set aside the Arbitral Award,
being opposed to the fundamental policy of India.
3.7 The Appellant Company filed its Reply to the said Petition, inter-alia,
stating that the Petition under Section 34 is barred by limitation being
filed after three months of the date of the Arbitral Award.
3.8 The Appellant Company further contended that the objections filed by
the Petitioner do not fall within the purview of Section 34(2) of the Act
and are liable to be dismissed. Allegations that the Respondent has
failed to approach the Court with clean hands were also made by the
Appellant Company against the Respondent.
4. In para 12 of the Impugned Judgment, it has been held by learned
District Judge, that the Petition under Section 34 of the Act is barred by
limitation is untenable as the Arbitral Award was passed on 16.07.2019
and it was received by the Respondent by post on 20.07.2019.
Therefore, the objections filed by the Petitioner on 18.10.2019 were
within time.
4.1 The learned District Judge, after dealing with the other objections of the
Appellant Company, has allowed the Petition under Section 34 of the
Act filed by the Respondent and set aside the Arbitral Award, stating
that there is no compliance of the provisions of Sections 12 and 21 of
the Act.
5 Being aggrieved with the findings of the learned District Judge, the
Appellant Company has filed the present Appeal, challenging the
Impugned Judgment on the following grounds:
―A. Mandatory notice as stipulated under section 21 of the
FAO (COMM) 179/2021 Pag e 5 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
Arbitration and Conciliation Act, 1996 was duly issued to
the respondent;
B. There was no violation of section 12 of the Arbitration
and Conciliation Act, 1996;
C. The respondent didn't object the appointment of the Ld.
Arbitrator during the Arbitral proceedings.‖
6. Sub-section (3) of Section 34, states that an Application for setting
aside an Arbitral Award is to be made within three months from the
date of receipt of the Arbitral Award. The proviso thereto also sets forth
that the Court may condone a delay for a period of up to 30 days
thereafter (and no more) if sufficient reasons are given by an
Application filed under this Section. Since the Arbitral Award was
received by Respondent on 20.07.2019, the Application made by the
Respondent on 18.10.2019 was within the period of three months, as
prescribed by the statute. The Application was, therefore, made by the
Respondent in time. Hence, we find no infirmity with this finding of the
learned District Judge.
7. The next challenge made by the Appellant Company is, that it has
wrongly been held in the Impugned Judgment, that the provisions of
Section 21 of the Act have not been complied with, when in fact, such,
compliance was done. The Appellant Company has relied on letters
dated 20.09.2018 and 27.09.2018 to contend that the procedure under
Section 21 of the Act in this regard.
7.1 It is further submitted by the Appellant Company that the learned
District Judge had wrongly relied on Alupro Building Systems Pvt. Ltd.
v. Ozone Overseas Pvt. Ltd. reported as 2017 SCC OnLine Del 7228, of
a Single Judge of this Court, Muralidhar, J. (as he then was) and on
other decisions of this Court to hold that there was no valid reference of
FAO (COMM) 179/2021 Pag e 6 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
dispute to Arbitration. It was submitted that these decisions would not
apply to the present case as Section 21 of the Act, had been complied
with, by the Appellant Company.
8. To better appreciate the case at hand, it is first necessary to set forth the
Arbitral clause in the Loan Agreement which provides for the
procedure for appointment of an Arbitrator.
8.1 Article 15 of the Loan Agreement states as follows:
"All disputes, differences and/or claims arising out of these
present or as to the construction, meaning or effect here of
or as to the rights and liabilities of the parties hereunder
shall be settled by arbitration to be held in Delhi in
accordance with the provisions of the Arbitration and the
Conciliation Act, 1996 or any other statutory amendments
thereof or any statue enacted for replacement thereof and
shall be referred to the sole arbitration of a person to be
nominated/appointed by Shriram. In the event death,
refusal, neglect, inability or incapability of the person so
appointed to act as an arbitrator, Shriram may appoint a
new arbitrator. The award including the interim award/s of
the arbitrator shall be final and binding on all the parties
concerned. The arbitrator may lay down from time to time
the procedure to be followed by him in conducting
arbitration proceedings in such a manner as the considers
appropriate. Any proceedings to be initiated in any courts
of law in pursuance of this arbitration shall be instituted
and held in the court at Delhi only.‖
[Emphasis is ours]
8.2 As per the aforesaid clause, "all disputes, differences and/or claims"
between the parties under the Loan Agreement, were to be referred to
Arbitration by a Sole Arbitrator who is "to be nominated/appointed by
Shriram" (Appellant Company herein).
8.3 A perusal of the Arbitral record as filed by the Appellant Company
shows that a letter dated 20.09.2018 was addressed by the Appellant
FAO (COMM) 179/2021 Pag e 7 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
Company to the Respondent stating that in the event, the payment due
is not made within 7 days, the disputes "stand referred to Arbitration"
and further that the Appellant Company shall initiate Arbitral
proceedings. The relevant portion of the said letter is extracted below:
―7. Hence kindly take Note that you addresses are
advised to pay and clear entire outstanding dues amounting
to Rs. 470248/- as on date 12/09/2018 and also with
accrued interest/Penal all other charges till the date of
repayment/realization and charges, within 7 days on the
receipt of this notice, failing which company will refer the
matter for arbitration.
8. If you have failed to comply with the requisitions
contained in notices, the disputes, differences and claims
shall be deemed to have arisen under the said Agreement
and the said disputes, differences and claim shall stand
referred to the Arbitration.
9. If you are failed to pay the outstanding amount as
per out [sic: our] loan agreement ARTICAL [sic: Article]
No. 15. We have a right to initiate arbitration processing.
So we will initiate the arbitration proceeding‖
[Emphasis is ours]
8.4 From a plain reading of this letter, two things are clear:
(i) The letter dated 20.09.2018 merely states that the Appellant
Company has a right to initiate Arbitration proceedings so they
will initiate such proceedings;
(ii) This letter does not name any person as an Arbitrator, nor the fact
that the person is being appointed as an Arbitrator in terms of the
procedure set forth in the Loan Agreement.
8.5 A week later, a letter dated 27.09.2018, was sent by the Appellant
Company to the Arbitrator appointing him as the ―Sole Arbitrator to
adjudicate the disputes and differences between Shriram Transport
Finance Co. Ltd. and Mr Narender Singh (Hirer) and pass the award.‖
FAO (COMM) 179/2021 Pag e 8 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
This letter was neither marked to the Respondent nor is there any
averment by the Appellant Company that the letter dated 27.09.2018
was in fact sent to the Respondent.
8.6 From a perusal of the Arbitral Award, it is also apparent that the letter
dated 27.09.2018 was sent by the Appellant Company to the Arbitrator,
by hand, through one Mr Tekchand Sharma, Attorney for the Appellant
Company.
9. In order to deal with the objection of the Appellant Company, the
notice under Section 21 of the Act was sent, we would need to refer to
the said provision. Section 21 of the Act, which sets forth the date of
commencement of Arbitral proceedings, reads as follows:
―21. Commencement of Arbitral proceedings. - unless
otherwise agreed by the parties, the Arbitral proceedings
in respect of a particular dispute commence on the date on
which a request for that dispute to be referred to
Arbitration is received by the respondent.‖
9.1 A plain reading of this Section shows that Arbitral proceedings
commence on the date on which the request for the dispute to be
referred to Arbitration is received by the concerned Respondent.
Therefore, the commencement of Arbitral proceedings is incumbent on
the "receipt of such request or notice‖. If no notice is received by the
concerned Respondent, there is no commencement of Arbitral
proceedings at all. Emphasis here is also made to the fact that the notice
should not only be ―sent‖ but also that the notice should be ―received‖
for such request for commencement.
9.2 Section 21 will have to be read with Section 34 of the Act. Section 34
(2) (iii) provides that an award may be set aside, in the event, where the
party appointing the Arbitrator has not given proper notice of the
FAO (COMM) 179/2021 Pag e 9 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
appointment of an Arbitrator or the Arbitral proceedings.
9.3 The judgement in Alupro Building case (supra) has aptly explained the
relevance of a notice under Section 21 of the Act. It was held that the
Act does not contemplate unilateral appointment of an Arbitrator by
one of the parties, there has to be a consensus for such appointment and
as such, the notice under Section 21 of the Act serves an important
purpose of facilitating such a consensus on the appointment of an
Arbitrator. It was further held in Alupro Building case (supra) that the
parties may opt to waive the requirement of notice under Section 21 of
the Act. However, in the absence of such a waiver, this provision must
be given full effect to.
9.4 We are in agreement with the principles as expressed in the decision of
Alupro Building case (supra), which are enunciated below:
(i) The party to the Arbitration Agreement against whom a claim is
made should know what the claims are. The notice under Section
21 of the Act provides an opportunity to such party to point out if
some of the claims are time barred or barred by law or untenable
in fact or if there are counter-claims.
(ii) Where the parties have agreed on a procedure for appointment,
whether or not such procedure has been followed, will not be
known to the other party unless such a notice is received.
(iii) It is necessary for the party making an appointment to let the
other party know in advance the name of the person who it
proposes to appoint as an Arbitrator. This will ensure that the
suitability of the person is known to the opposite party including
whether or not the person is qualified or disqualified to act as an
Arbitrator for the various reasons set forth in the Act. Thus, the
FAO (COMM) 179/2021 Pag e 10 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
notice facilitates the parties in arriving at a consensus for
appointing an Arbitrator.
(iv) Unless such notice of commencement of Arbitral proceedings is
issued, a party seeking reference of disputes to Arbitration upon
failure of the other party to adhere to such request will be unable
to proceed under Section 11(6) of the Act. Further, the party
sending the notice of commencement may be able to proceed
under the provisions of Sub-section 5 of Section 11 of the Act for
the appointment of an Arbitrator if such notice does not evoke
any response.
10. The Appellant Company has relied on the letters dated 20.09.2018 and
27.09.2018 to show compliance with Section 21 of the Act. This
reliance by the Appellant Company is completely misconceived. The
letter of 20.09.2018 was a unilateral communication sent by the
Appellant Company to the Respondent. As discussed above, the letter
did not set-forth any details about who was being appointed as an
Arbitrator or the procedure being followed. The Appellant Company
merely stated that they have a right to initiate Arbitral proceedings and
so they will initiate Arbitral proceedings. There was no person named
as an Arbitrator therein nor was any consensus sought in such
appointment. There is no evidence of this letter ever being received by
the Respondent on record either. As such, the letter dated 20.09.2018
would not qualify as notice under Section 21 of the Act.
10.1 The letter dated 27.09.2018, was never sent to the Respondent so there
was no question of this letter being received by the Respondent. It was
only sent to the Arbitrator. This letter could not qualify to be the notice
of commencement of proceedings either.
FAO (COMM) 179/2021 Pag e 11 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
10.2 The record also shows that the parties had no agreement for a waiver of
the requisite notice under Section 21 of the Act.
10.3 Hence, we hold that the Arbitral appointment made by the Appellant
Company was not made in accordance with the provisions of Section
21 of the Act.
11. We now propose to deal with the second objection in the said Appeal
raised by the Appellant Company that there was no violation of
Section 12 of the Act. It has been held by the learned District Judge that
the letter/notice dated 11.02.2019, sent by the Arbitrator to the parties,
did not furnish the mandatory disclosure under Section 12 of the Act.
The Counsel for the Appellant Company has submitted that such
disclosure is not a mandatory requirement in the Act and challenged
these findings in the present Appeal.
11.1 A perusal of the letter/notice dated 11.02.2019 addressed by Shri B.L.
Garg (Retd. ADJ and the Arbitrator) states that he had been appointed
by the Appellant Company, as the Sole Arbitrator to decide the disputes
that have arisen between the Appellant Company and the Respondent.
The letter/notice is addressed to the Appellant Company as well as the
Respondent. The letter did not contain any reference to the disclosure as
mandated under Section 12 of the Act.
11.2 The letter/notice dated 11.02.2019, is reproduced below:
―BEFORE SHRI B.L.GARG. ARBITRATOR.
(Addl. District &Sessions Judge (Retd)
.......
SPEED/REGD. POST
FILE NO. ARB/BLG/7528/2019 Dated.11-02-2019.
IN THE MATTER OF ARBITRATION BETWEEN
FAO (COMM) 179/2021 Pag e 12 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
SHRIRAM TRANSPORT FINANCE.COMPANY LIMITED,
Regd. Office at Mookambika, Complex, 3rd Floor,
4, Lady Desika Road, Mylapore, Chennai-600004.
Branch Office at: 431/64/1 Ground Floor, LDA Trust Estate,
Kewai Park Extn. Azadpur, Delhi-110033 Claimant
AND
1. MD, Narender Singh, S/o Sh. Hari Singh Thakur,
R/o H.N, A-930, Block-A,
Jahangirpuri, Delhi-110033.
2. Sh. Kharak Singh, S/o Sh. Prem Singh,
R/o H.No.E-280, Budh Nagar,
Inderpuri, Delhi-110012. Respondents
Whereas, M/s Shrirarn [sic : Shriram] Transport Finance
Co. Ltd. Vide letter dated 27-09-2018, by invoking the
Arbitration Clause of Loan Agreement No.
AZDPRO410170003 has appointed me as Sole Arbitrator to
decide the dispute that has arisen between the above named
parties.
Now Therefore Notice Is Hereby Given That:
The hearing in the above case will be held on 18-03-2019
at 4.00 p.m. at A-9, Ganpati Apartments, 6, Alipur Road,
Civil Lines, Delhi - 110054.
The parties shall file their Statement of
Facts/Counter Statement of facts, if any, together with
documents in support thereof on the said date, place and
‗
time.
If any of the party fails to attend the hearing, I
(Arbitrator) shall be at liberty to conduct the proceedings,
ex-parte.
Sd/-
(B.L. GARG)‖
11.3 The record further shows that there is no disclosure as is envisaged
under the provisions of the Act, made during the pendency of the
Arbitral proceedings by the learned Sole Arbitrator.
FAO (COMM) 179/2021 Pag e 13 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
12. The Impugned Judgment has discussed in detail the provisions of
Sections 12 and 34 of the Act along with the Fifth, Sixth, and Seventh
Schedules of the Act, thereof and has relied on the Judgment of Alupro
Building case (supra), wherein a similar non-disclosure by an Arbitrator
led to setting aside of the Award.
12.1 The Impugned Judgment, further discussed other judgments of this
Court and the judgment of the Supreme Court in the matter of Perkins
Eastman Architects DPC v. HSCC (India) Ltd., reported as (2020) 20
SCC 760, which dealt with the independence and impartiality of an
Arbitrator. The Supreme Court in Perkins Eastman case (supra) has
held that the relationship between the parties to the Arbitration and the
Arbitrator is contractual in nature and that the Act itself requires an
Arbitrator to rise above the interest of the parties in performing his
adjudicatory role and, therefore, must be independent of the parties and
impartial as well.
12.2 The Counsel for the Appellant Company, has contended that the
provisions of Section 12 and the Fifth and Sixth Schedules of the Act
do not state that it is mandatory for the Arbitrator to make any such
disclosure and hence the non-disclosure by the Arbitrator was not a
ground to set aside the Arbitral Award.
13. We are unable to agree with this submission. Section 12 and Fifth,
Sixth and Seventh Schedules have been inserted in the Act, pursuant to
the 2016 amendment (Act 3 of 2016). Sub-section (1) and (2) of
Section 12 of the Act are relevant in this regard.
13.1 Section 12(1)(a) of the Act, states that any person who is approached in
connection with his possible appointment as an Arbitrator ―shall‖
disclose in writing any circumstances which are likely to give rise to
FAO (COMM) 179/2021 Pag e 14 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
justifiable doubts as to his independence or impartiality. The disclosure
is clearly mandatory. It reads as follows:
―Section 12. Grounds for challenge. -- (1) When a person
is approached in connection with his possible appointment
as an arbitrator, he shall disclose in writing any
circumstances,--
(a) such as the existence either direct or indirect, of any
past or present relationship with or interest in any of the
parties or in relation to the subject matter in dispute,
whether financial, business, professional or other kind,
which is likely to give rise to justifiable doubts as to his
independence or impartiality; and
(b) which are likely to affect his ability to devote
sufficient time to the arbitration and in particular his
ability to complete the entire arbitration within a period
of twelve months.‖
[Emphasis is ours]
13.2 The Explanation to Section 12(1) of the Act states that, "the grounds
stated in the Fifth Schedule shall guide in determining whether
circumstances exist which give rise to justifiable doubts as to the
independence or impartiality of an arbitrator."
13.3 Section 12(2) casts a duty upon the Arbitrator to make such a disclosure
as follows:
―(2) An arbitrator, from the time of his appointment and
throughout the arbitral proceedings, shall, without delay,
disclose to the parties in writing any circumstances referred
to in sub-section (1) unless they have already been informed
of them by him.‖
[Emphasis is ours]
13.4 Section 12(3) explains that a challenge to an Arbitrator may be made in
two circumstances:
―(3) An arbitrator may be challenged only if--
FAO (COMM) 179/2021 Pag e 15 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
(a) circumstances exist that give rise to justifiable doubts as
to his independence or impartiality; or
(b) he does not possess the qualifications agreed to by the
parties.‖
13.5 Thus, the grounds as mentioned in the Fifth Schedule of the Act
become guiding factors to determine whether any justifiable ground
exists regarding the independence and impartiality of the Arbitrator.
13.6 We are supported in our view by the judgment of the Supreme Court in
HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India)
Ltd. reported as (2018) 12 SCC 471, which has clarified Section 12 of
the Act, as follows:
―11. Under Section 12, it is clear that when a person is
approached in connection with his possible appointment as
an arbitrator, he has to make a disclosure in writing, in
which he must state the existence of any direct or indirect
present or past relationship or interest in any of the parties
or in relation to the subject-matter in dispute, which is
likely to give justifiable doubts as to his independence or
impartiality. He is also to disclose whether he can devote
sufficient time to the arbitration, in particular to be able to
complete the entire arbitration within a period of 12
months. Such disclosure is to be made in a form specified in
the Sixth Schedule, grounds stated in the Fifth Schedule
being a guide in determining whether such circumstances
exist....‖
[Emphasis is ours]
14. It has not been disputed by the Counsel for the Appellant Company that
the Arbitrator is the regular Arbitrator for the parties and has acted on
various occasions for the Appellant Company. This fact was also
affirmed by the Counsel for the Appellant Company, as noted in our
Order dated 10.11.2021. However, this fact was never disclosed by the
Sole Arbitrator to the parties in the format specified in the Sixth
FAO (COMM) 179/2021 Pag e 16 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
Schedule or otherwise.
14.1 The only exception to the above circumstances is Explanation 3 to the
Fifth Schedule, which, however, is inapplicable to the present case.
Explanation 3 states as follows:
―For the removal of doubts, it is clarified that it may be the
practice in certain specific kinds of arbitration, such as
maritime or commodities arbitration, to draw arbitrators
from a small, specialised pool. If in such fields it is the
custom and practice for parties frequently to appoint the
same arbitrator in different cases, this is a relevant fact to
be taken into account while applying the rules set out
above.‖
14.2 The facts, as available from the record show:
(i) The Arbitrator addressed letter/notice dated 11.02.2019 to both
parties of his appointment by the Appellant Company by its
letter dated 27.09.2018. As discussed hereinabove, the letter
dated 27.09.2018 was not sent to the Respondents. The
Respondent only got notice of the Arbitral proceedings after the
Arbitrator entered reference, upon receipt of the letter/notice
dated 11.02.2019.
(ii) The letter/notice dated 11.02.2019, sent by the Arbitrator to the
parties informing them of his appointment mentions the date
and time of hearing, and requires the parties to file their
Statement of Claim/Counter Statement of Claim along with
documents. It does not contain any declaration under Section 12
of the Act.
(iii) The proceeding sheets recording the Arbitral proceedings on
18.03.2019, 23.04.2019, 31.05.2019, 04.07.2019 and
16.07.2019 [at pages 125-126 and 134-135 of the case file] do
FAO (COMM) 179/2021 Pag e 17 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
not contain any reference to this mandatory requirement of the
Act either.
14.3 As the Arbitrator has acted in the past for the Appellant Company,
Section 12(1)(a) and 12(2) of the Act makes it incumbent upon him to
make a disclosure regarding his relation with the Appellant Company,
at the time of entering into reference in terms of these provisions of the
Act. Therefore, the following clauses of the Fifth Schedule will be
applicable in the facts of this case:
"The following grounds give rise to justifiable doubts as to
the independence or impartiality of arbitrators.
―Previous services for one of the parties or other
involvement in the case
....
22. The arbitrator has within the past three years been
appointed as arbitrator on two or more occasions by one of
the parties or an affiliate of one of the parties.
23......
24. The arbitrator currently serves, or has served within the
past three years, as arbitrator in another arbitration on a
related issue involving one of the parties or an affiliate of
one of the parties......‖
14.4 However, the Arbitrator did not furnish the mandatory disclosure either
at the initial stage or thereafter, during the pendency of the proceedings.
15. The effect of such non disclosure as is required by Section 12 read with
the Fifth Schedule of the Act is required to be seen. The law in regard
to this provision of the Act is well settled. The Supreme Court, in a
Judgment titled Bharat Broadband Network Limited v. United Telecoms
Limited reported as (2019) 5 SCC 755, while dealing with the law, in
relation to Section 12 and the Fifth and Sixth Schedules of the Act, has
FAO (COMM) 179/2021 Pag e 18 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
held that the disclosures under the Act, are required to be made and
where these are not complied with, the Arbitral appointment may be
challenged. The relevant extract is below:
―14. From a conspectus of the above decisions, it is clear
that Section 12(1), as substituted by the Arbitration and
Conciliation (Amendment) Act, 2015 [―the Amendment Act,
2015‖], makes it clear that when a person is approached in
connection with his possible appointment as an arbitrator,
it is his duty to disclose in writing any circumstances which
are likely to give rise to justifiable doubts as to his
independence or impartiality. The disclosure is to be made
in the form specified in the Sixth Schedule, and the grounds
stated in the Fifth Schedule are to serve as a guide in
determining whether circumstances exist which give rise to
justifiable doubts as to the independence or impartiality of
an arbitrator. Once this is done, the appointment of the
arbitrator may be challenged on the ground that justifiable
doubts have arisen under sub-section (3) of Section 12
subject to the caveat entered by sub-section (4) of Section
12. The challenge procedure is then set out in Section 13,
together with the time-limit laid down in Section 13(2).
What is important to note is that the Arbitral Tribunal must
first decide on the said challenge, and if it is not successful,
the Tribunal shall continue the proceedings and make an
award. It is only post award that the party challenging the
appointment of an arbitrator may make an application for
setting aside such an award in accordance with Section 34
of the Act.‖
[Emphasis is ours]
15.1. The Supreme Court, in the case of HRD Corpn. (supra), while
discussing the changes made by the 2016 Amendment to the Act (Act 3
of 2016), explained the principles of challenge under the Fifth and
Seventh Schedule of the Act and held as follows:
―12. After the 2016 Amendment Act, a dichotomy is made
by the Act between persons who become ―ineligible‖ to be
appointed as arbitrators, and persons about whom
FAO (COMM) 179/2021 Pag e 19 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
justifiable doubts exist as to their independence or
impartiality. Since ineligibility goes to the root of the
appointment, Section 12(5) read with the Seventh Schedule
makes it clear that if the arbitrator falls in any one of the
categories specified in the Seventh Schedule, he becomes
―ineligible‖ to act as arbitrator. Once he becomes
ineligible, it is clear that, under Section 14(1)(a), he then
becomes de jure unable to perform his functions inasmuch
as, in law, he is regarded as ―ineligible‖.....
As opposed to this, in a challenge where grounds stated in
the Fifth Schedule are disclosed, which give rise to
justifiable doubts as to the arbitrator's independence or
impartiality, such doubts as to independence or impartiality
have to be determined as a matter of fact in the facts of the
particular challenge by the Arbitral Tribunal under Section
13. If a challenge is not successful, and the Arbitral
Tribunal decides that there are no justifiable doubts as to
the independence or impartiality of the
arbitrator/arbitrators, the Tribunal must then continue the
arbitral proceedings under Section 13(4) and make an
award. It is only after such award is made, that the party
challenging the arbitrator's appointment on grounds
contained in the Fifth Schedule may make an application
for setting aside the arbitral award in accordance with
Section 34 on the aforesaid grounds....‖
[Emphasis is ours]
16. The Appellant Company in ground „C‟ of this Appeal has submitted
that since the Respondent did not object to the appointment of the
Arbitrator during the Arbitral proceedings and was, therefore, precluded
from raising this objection in its Petition under Section 34 of the Act.
16.1 In order to discuss the challenge raised, it is necessary to set forth the
relevant provisions of Section 13 of the Act. Section 13 of the Act is to
be read with the provisions of Section 12 of the Act. The relevant
extract of Section 13 of the Act reads as follows:
FAO (COMM) 179/2021 Pag e 20 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
―13. Challenge procedure.--
(1) Subject to sub-section (4), the parties are free to agree
on a procedure for challenging an arbitrator.
(2) Failing any agreement referred to in sub-section (1), a
party who intends to challenge an arbitrator shall, within
fifteen days after becoming aware of the constitution of the
arbitral tribunal or after becoming aware of any
circumstances referred to in sub-section (3) of Section 12,
send a written statement of the reasons for the challenge to
the arbitral tribunal.
(3) Unless the arbitrator challenged under sub-section (2)
withdraws from his office or the other party agrees to the
challenge, the arbitral tribunal shall decide on the
challenge.
(4) If a challenge under any procedure agreed upon by the
parties or under the procedure under sub-section (2) is not
successful, the arbitral tribunal shall continue the arbitral
proceedings and make an arbitral award.
(5) Where an arbitral award is made under sub-section (4),
the party challenging the arbitrator may make an
application for setting aside such an arbitral award in
accordance with Section 34.
(6) Where an arbitral award is set aside on an application
made under sub-section (5), the Court may decide as to
whether the arbitrator who is challenged is entitled to any
fees.‖
[Emphasis is ours]
16.2 Section 12(3)(a) of the Act (reproduced in para 13.4 hereinabove)
makes it incumbent for an Arbitrator to make a disclosure of any
circumstances which would give rise to justifiable doubts as to his
independence or impartiality, inter-alia, in terms of the Fifth Schedule
of the Act. Sub-section 3(b) of Section 12 of the Act is not applicable in
FAO (COMM) 179/2021 Pag e 21 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
this case and the provision applicable here is Section 12(3)(a) of the
Act.
16.3 Sub-section (2) of section 13 of the Act then sets forth how/when an
Arbitrator must be challenged. This Section limits the challenge to two
circumstances:
(i) Within 15 days or after becoming aware of the constitution of
the Arbitrator/Arbitral Tribunal; or
(ii) After becoming aware of the circumstances referred to in
Section 12(3)(a) or (b) of the Act.
16.4 We find that initially, as discussed above, no notice as contemplated
under the provisions of Section 21 of the Act was ever received by the
Respondent to make such a challenge. After receipt of the notice from
the Arbitrator on 11.02.2019, the Respondent did appear before the
Arbitrator for the hearings on 18.03.2019 and 23.04.2019. The
Impugned Judgment states that on 31.05.2019, the Respondent was
unable to appear on time and was informed by the Arbitrator that the
proceedings were closed.
16.5 A perusal of the order sheets of the Arbitrator [see pages 134-135 of the
case file] however shows that on 31.05.2019, the Respondent was
proceeded ex-parte without recording the factum of his late appearance.
Subsequently, the Appellant Company led ex-parte evidence on
04.07.2019 and the Arbitral Award was pronounced by the Arbitrator
on 16.07.2019. On these 3 dates, there was appearance by the Appellant
Company and not by the Respondent who was ex-parte.
16.6 The question that therefore arises is whether the challenge made by the
Respondent was in terms of the provision of Sub-section (2) of Section
13 of the Act.
FAO (COMM) 179/2021 Pag e 22 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
16.7 As discussed, the phrase referred to in Section 13(2) of the Act is "or
after becoming aware of any circumstances referred to in sub-section
(3) of Section 12, send a written statement of the reasons for the
challenge to the arbitral tribunal‖. Admittedly, the Respondent did
appear on two dates (18.03.2019 and 23.04.2019) before the Arbitrator
without making any such challenge, hence the challenge was not made
within 15 days of the constitution of the Arbitral Tribunal. However,
the Arbitrator had not complied with the provision of Section 12 of the
Act, by making the mandatory disclosure of the fact that he had
previously appeared as an Arbitrator for the Appellant Company.
Without such knowledge, there was no occasion for the Respondent to
doubt the Arbitrator. The challenge could only, therefore, be made by
the Respondent after becoming aware of these circumstances, which, as
discussed above, he became aware of after obtaining a certified copy of
the ex-parte Arbitral Award on 20.07.2019. In the present case, the
Respondent has made the challenge of "circumstances" as envisaged in
Sub-section (3) of Section 12 of the Act, after passing of the Arbitral
Award. This objection was therefore, taken by the Respondent in his
Petition under Section 34 of the Act stating therein the reason for the
said challenge. We, therefore, hold that there is no non-compliance of
the provisions of the Act by the Respondent.
17. The scope and ambit of a challenge under Sections 34 and 37 of the Act
is no longer res integra. In a recent decision by the Supreme Court in
the matter of PSA SICAL Terminals Pvt. Ltd. v Board of Trustees of
V.O. Chidambranar Port Trust Tuticorin reported as 2021 SCC OnLine
SC 508, the Supreme Court has reiterated its view, in MMTC Limited v.
Vedanta Limited reported as (2019) 4 SCC 163, and held as follows:
FAO (COMM) 179/2021 Pag e 23 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
―41. It will be relevant to refer to the following
observations of this court in the case of MMTC Limited
(supra):
―11. As far as Section 34 is concerned, the
position is well-settled by now that the Court
does not sit in appeal over the arbitral award
and may interfere on merits on the limited
ground provided under Section 34(2)(b)(ii)
i.e., if the award is against the public policy
of India. As per the legal position clarified
through decisions of this Court prior to the
amendments to the 1996 Act in 2015, a
violation of Indian public policy, in turn,
includes a violation of the fundamental
policy of Indian law, a violation of the
interest of India, conflict with justice or
morality, and the existence of patent
illegality in the arbitral award. Additionally,
the concept of the ―fundamental policy of
Indian Law‖ would cover compliance with
statutes and judicial precedents, adopting a
judicial approach, compliance with the
principles of natural justice, and Wednesbury
[Associated Provincial Picture Houses v.
Wednesbury Corpn., [1948] 1 K.B. 223
(CA)] reasonableness. Furthermore, ―patent
illegality‖ itself has been held to mean
contravention of the substantive law of India,
contravention of the 1996 Act, and
contravention of the terms of the contract.
12. It is only if one of these conditions is met
that the Court may interfere with an arbitral
award in terms of Section 34(2) (b)(ii), but
such interference does not entail a review of
the merits of the dispute, and is limited to
situations where the findings of the arbitrator
are arbitrary, capricious or perverse, or
when the conscience of the Court is shocked,
or when the illegality is not trivial but goes
FAO (COMM) 179/2021 Pag e 24 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
to the root of the matter. An arbitral award
may not be interfered with if the view taken
by the arbitrator is a possible view based on
facts.
....
14. As far as interference with an order made
under Section 34, as per Section 37, is
concerned, it cannot be disputed that such
interference under Section 37 cannot travel
beyond the restrictions laid down under
Section 34. In other words, the Court cannot
undertake an independent assessment of the
merits of the award, and must only ascertain
that the exercise of power by the Court under
Section 34 has not exceeded the scope of the
provision...‖
[Emphasis is ours]
17.1 Recently the Supreme Court, in UHL Power Co. Ltd. v. State of H.P.
reported as (2022) 4 SCC 116, has further clarified the principles for the
exercise of jurisdiction under Sections 34 and 37 of the Act as follows:
―16. As it is, the jurisdiction conferred on courts under
Section 34 of the Arbitration Act is fairly narrow, when it
comes to the scope of an appeal under Section 37 of the
Arbitration Act, the jurisdiction of an appellate court in
examining an order, setting aside or refusing to set aside
an award, is all the more circumscribed. In MMTC
Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta Ltd., (2019) 4
SCC 163:(2019) 2 SCC (Civ) 293], the reasons for vesting
such a limited jurisdiction on the High Court in exercise of
powers under Section 34 of the Arbitration Act have been
explained .....
17. A similar view, as stated above, has been taken by this
Court in K. Sugumar v. Hindustan Petroleum Corpn.
Ltd. [K. Sugumar v. Hindustan Petroleum Corpn. Ltd.,
(2020) 12 SCC 539], wherein it has been observed as
follows : (SCC p. 540, para 2)
―2. The contours of the power of the Court
FAO (COMM) 179/2021 Pag e 25 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
under Section 34 of the Act are too well
established to require any reiteration. Even a
bare reading of Section 34 of the Act
indicates the highly constricted power of the
civil court to interfere with an arbitral
award. The reason for this is obvious. When
parties have chosen to avail an alternate
mechanism for dispute resolution, they must
be left to reconcile themselves to the wisdom
of the decision of the arbitrator and the role
of the court should be restricted to the bare
minimum. Interference will be justified only
in cases of commission of misconduct by the
arbitrator which can find manifestation in
different forms including exercise of legal
perversity by the arbitrator.....‖
[Emphasis is ours]
17.2 In exercise of powers under Section 37 of the Act, the scope of
interference is completely curtailed. The Supreme Court has, however,
held that where in the Arbitral proceedings the illegality goes to the
very root of the matter, interference by the Court is warranted. Such
interference will be justified especially when the Arbitrators conduct
and impartiality is in doubt.
18. As already discussed above, in the present case, there has been non-
compliance with Section 21 of the Act by the Appellant Company.
Further, the Arbitrator‟s disclosure as mandated in Section 12 of the
Act read with the Fifth and Sixth Schedules of the Act, is also absent.
Thus, any Award rendered by such an Arbitrator, as such, cannot be
sustained.
18.1 The learned District Judge has exercised jurisdiction under the
provisions of Section 34 of the Act on finding non-compliance with the
provisions of Section 12 and 21 of the Act and has proceeded to set
FAO (COMM) 179/2021 Pag e 26 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
aside the Arbitral Award.
18.2 In view of the aforegoing discussions and the findings in respect of
Section 12 read with the Fifth and Sixth Schedules, Section 13 and
Section 21 read with Section 34(2)(iii) of the Act, we find that no
infirmity or illegality exists in the Impugned Judgment, that would
merit our interference under Section 37 of the Act.
18.3 The Appeal is, therefore, misconceived and is accordingly dismissed.
The pending Application is also dismissed. There shall be no order as to
costs. The record be consigned to the record room as per the procedure.
TARA VITASTA GANJU, J
RAJIV SHAKDHER, J
OCTOBER 13, 2022
Sk Click here to check corrigendum, if any
FAO (COMM) 179/2021 Pag e 27 of 27
Signature Not Verified
Digitally Signed By:KAUSHAL
KUMAR SACHDEVA
Signing Date:13.10.2022
19:39:06
