Vaishnavi Reddy D vs M/S.Hdfc Bank Limited
2022 Latest Caselaw 7660 Mad

                                                                           Arb.O.P (Com.Div.) No.132 of 2022

                                    IN THE HIGH COURT OF JUDICATURE AT MADRAS

                                                     DATED : 12.04.2022

                                                               CORAM

                                         THE HON'BLE MR. JUSTICE M.SUNDAR

                                              Arb.O.P (Com.Div.) No.132 of 2022

                     Vaishnavi Reddy D                                             ... Petitioner

                                                        Vs.

                     1. M/s.HDFC Bank Limited
                        a Banking Company incorporated
                        Under the provisions of Indian
                        Companies Act and holding a license of Banking
                        from Reserve Bank of India
                       and having its registered Office at
                       "HDFC Bank House", Senapati Bapat Marg
                        Lower Parel, Mumbai, Maharashtra - 400 013

                         and having one of its branch office at
                         No.110, Cerebros, Nelson Manickam Road
                         Aminjikarai, Chennai - 600 029                     ... Respondent

                                  Arbitration Original Petition filed under Section 34(2)(b)(ii) and
                     Section 34(2-A) of the Arbitration and Conciliation Act, 1996 to set aside
                     the arbitral award dated 24.09.2021 bearing No.HDFC/ARB/215/2021
                     passed by sole Arbitrator and to direct the respondent to pay the costs.
                                              For Petitioner      : Mr.J.Ravi Kumar


                     1/19


https://www.mhc.tn.gov.in/judis
                                                                              Arb.O.P (Com.Div.) No.132 of 2022



                                                             ORDER

Captioned 'Arbitration Original Petition' [hereinafter 'Arb.OP' for the

sake of brevity] has been presented in this Court on 03.01.2022 assailing an

'arbitral award dated 24.09.2021 bearing reference Arbitration Case

No.HDFC/ARB/215/2021' [hereinafter 'impugned award' for the sake of

convenience and clarity]. To be noted, impugned award has been made by

an 'Arbitral Tribunal' ['AT'] constituted by a sole Arbitrator.

2. Owing to the limited legal landscape qua a legal drill under Section

34 of A and C Act, short facts shorn of elaboration will suffice. Factual

matrix in a nutshell containing essential facts that are imperative for

appreciating this order are that the petitioner before me, who is an

individual and (who shall be referred to as 'borrower' for the sake of

convenience and clarity), admittedly took a personal loan from the

respondent before me [hereinafter 'said Bank' for the sake of convenience

and clarity] vide a 'loan agreement dated 16.03.2018 bearing No.55629979'

[hereinafter 'primary contract' and /or 'said loan agreement' for the sake of

convenience and clarity]; that the borrower was sanctioned personal loan of

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a little over Rs.5.47 Lakhs (Rs.5,47,908/- to be precise); that this personal

loan was disbursed by said Bank; that the borrower had to re-pay this loan

in 69 monthly instalments of Rs.13,280/- each; that admittedly borrower

committed default after paying some instalments; that the said Bank sent a

loan recall notice dated 19.01.2021 calling upon the borrower to pay the

outstanding as on 07.01.2021; that the borrower did not pay the outstanding

in spite of such notice, repeated requests, reminders and further notices; that

said loan agreement consists of a arbitration clause; that this arbitration

clause in the said loan agreement (primary contract) serves as an arbitration

agreement between the parties i.e., arbitration agreement within the meaning

of Section 2(1)(b) read with Section 7 of 'the Arbitration and Conciliation

Act, 1996 (Act No.26 of 1996)' [hereinafter 'A and C Act' for the sake of

convenience and clarity]; that the said Bank invoked the arbitration

agreement in and by notice dated 02.03.2021 bearing reference

HDFC/ARB/215/2021 appointing a learned member of the Bar (Advocate)

as sole Arbitrator; that this 02.03.2021 notice was admittedly received by

the borrower; that the borrower neither replied nor responded to this

02.03.2021 arbitration agreement invocation notice; that sole Arbitrator i.e.,

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'Arbitral Tribunal' ['AT'] entered upon reference; that as captured in the

impugned award AT sent atleast two notices to the borrower, one for the

sitting of AT on 03.08.2021 and a second notice for the sitting of AT on

10.08.2021; that the borrower admittedly received these notices from the

AT but did not go before AT; that AT proceeded with the arbitration,

framed issues on the basis of available pleadings i.e., claim statement (to be

noted borrower did not go before the AT and file a counter); that AT

considered the issues on merits; that there was oral and documentary

evidence on behalf of the said Bank before the AT (to be noted, said Bank

was claimant before AT); that one witness was examined on behalf of the

said Bank; that five documents i.e., Exhibits were marked by the said Bank

as Ex.C.1 to Ex.C.5; that vide the impugned award, AT determined that the

borrower is liable to pay a little over Rs. 4.43 Lakhs (Rs.4,43,828.52/- to be

precise) together with future interest besides saying that the borrower is

liable to pay Rs.10,000/- (Rupees Ten Thousand Only) towards costs; that

vide the impugned award, AT had also held that on failure to pay the

aforementioned quantified amount by the borrower within the stipulated 30

days time, the same can be recovered by attachment and sale of personal

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assets and properties of the borrower; that a signed copy of this impugned

award was admittedly delivered to the borrower by the AT by mail (speed

post with acknowledgement due) under cover of a letter dated 27.09.2021

(served on the borrower on 06.10.2021); that the borrower has now come up

with captioned Arb.OP assailing the impugned award.

3. Mr.J.Ravi Kumar, learned counsel for borrower (petitioner before

me) notwithstanding very many averments in the captioned Arb.OP and

notwithstanding several grounds raised in the captioned Arb.OP, in his

campaign against impugned award, made focused submissions on two

points and they are as follows:

(i) The very appointment of Arbitrator is bad in law

as it is unilateral;

(ii) The impugned award travels beyond the scope of

arbitration in saying that the monies can be recovered from

the borrower by attachment of assets of the borrower if the

award amount is not paid within the time stipulated;

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4. I carefully considered the detailed arguments made by learned

counsel for petitioner in captioned Arb.OP (borrower) in support of the

aforementioned contentions. In other words, I heard out the matter for

admission in accordance with Rule 8 of the Madras High Court Arbitration

Proceedings Rules, 2017 and clause 8.5 of the Practice Directions thereat.

After careful consideration, I am not inclined to admit or issue notice in the

captioned Arb.OP. The reasons will be set out infra. In the course of setting

out the reasons, I shall consider the points, discuss the same and also give

my dispositive reasoning in the light of the factual matrix which has been

captured / set out supra. Reasons are as follows:

(i) Though six case laws have been placed before this

Court as a compilation, learned counsel pressed into service

four of these case laws and they are TRF Ltd. Vs. Energo

Engineering Projects Ltd. reported in MANU/SC/0755/2017,

HRD Corporation Vs.GAIL (India) Limited reported in

MANU/SC/1066/2017, Bharath Broadband Network Limited

Vs. United Telecoms Limited reported in

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MANU/SC/0543/2019 and Perkins Eastman Architects DPC

Vs. HSCC (INDIA) Ltd. reported in MANU/SC/1628/2019 to

buttress his first argument that the appointment of Arbitrator is

unilateral and therefore the appointment is bad in law;

(ii) Before I respectfully refer to the aforementioned case

laws, I remind myself of the celebrated Padma Sundara Rao

case law rendered by a Hon'ble Constitution Bench of Supreme

Court in Padma Sundara Rao Vs. State of Tamil Nadu

reported in (2002) 3 SCC 533. Padma Sunda ra Rao case law

having been rendered by a Constitution Bench, the principle

laid down thereat is elevated from the status of a ratio to a

declaration of law. In Padma Sundara Rao case law, it was

inter alia made clear that a case law should be cited by

referring to the fact setting and even one difference in fact can

make a world of difference to the ratio. Most relevant

paragraph in the celebrated/oft quoted Constitution Bench

Judgement (Padma Sundara Rao case law) is paragraph 9 and

the same reads as follows:

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'9.Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morris in Herrington v. British Railways Board [(1972) 2 WLR 537 : 1972 AC 877 (HL) [Sub nom British Railways Board v. Herrington, (1972) 1 All ER 749 (HL)]] . Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases.'

(iii) I respectfully applied Padma Sundara Rao

principle to the aforesaid four case laws. It is very clear that the

aforesaid four case laws do not come to the aid of the

petitioner/borrower in the case on hand and the reasons are as

follows:

a) In the aforesaid case laws the appointment

of Arbitrator was objected to at the first available

opportunity or it was at least at the stage of

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appointment of arbitrator and it was not a post

award exercise in a Section 34 legal drill;

b) If the above trend is entertained it will

open the flood gates and it can pave the way for

parties waiting for awards to be made and thereafter

raising points that were (purportedly) available to

them even at the time of invocation of the

arbitration clause even though they were put on

notice. This will defeat the very objective of

'Alternate Dispute Resolution' ['ADR'] mechanism

as expeditious dispensation of justice is one of the

sanctus sublime philosophies underlying ADR;

c) Though learned counsel neither argued nor

placed before this Court and did not press into

service Lion engineering case law [Lion

Engineering Consultants vs. State of Madhya

Pradesh and Others reported in (2018) 16 SCC

758], I deem it appropriate to set out that this Court

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is aware of the ratio of Hon'ble Supreme Court in

Lion Engineering principle wherein it was held

that a point which could have been raised before the

AT (but was not raised) can be raised for the first

time in Section 34. To be noted Lion Engineering

principle was rendered by saying that MSP

Infrastructure case law [MSP Infrastructure Ltd.,

Vs. M.P. Road Development Corpn. Ltd., reported

in (2015) 13 SCC 713] does not lay down the

correct position of law. If Padma Sundara Rao

Constitution Bench principle is applied, Lion

Engineering is also distinguishable on facts and it

does not come to the aid of petitioner in this case as

this is a case where the petitioner (borrower) has

received the invocation notice but did not respond

or reply and also received not one but two notices

from the AT and has simply not gone before the

AT. The least the borrower could have done is to

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send a response to the AT or object to the unilateral

appointment. To be noted, in Lion Engineering

respondent State sought amendment to its

objections after three years. Appellant Lion

Engineering contended that amendment to objection

which was not raised under Section 16(2) before

Arbitrator could not be raised in Section 34 relying

MSP case.

(d) The aforementioned four case laws are

distinguishable on facts on another facet. In the

aforementioned Bharath Broadband case law, an

employee of one of the parties was to be appointed

as Arbitrator. This was clearly hit by Serial No.1 of

the Seventh Schedule of A and C Act. The question

was whether a person who is disqualified to act as

an Arbitrator owing to Serial No.1 of the Seventh

Schedule of A and C Act can appoint an Arbitrator

which in effect means that a disqualified person

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circumnavigates statutory disqualification. In the

case on hand, there is nothing to suggest that an

employee, consultant, advisor or a person who has

past or present business relationship with the said

Bank has been appointed as Sole Arbitrator. That is

not the case of petitioner/borrower. On the contrary,

a learned member of Bar has been appointed as

Arbitrator;

e) Another point that distinguishes the case

on hand (on facts) is, arbitration agreement

provides for appointment by the said Bank but not

an employee of said Bank. As already alluded to

supra, said Bank has only appointed a learned

member of the Bar and the borrower has not

objected to the same in spite of adequate and ample

opportunities qua invocation notice dated

02.03.2021 and two notices from AT for the sittings

on 03.08.2021 and 10.08.2021. Therefore the

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borrower has clearly waived her right (if any) in

this regard and has submitted herself to party

autonomy ingrained in the arbitration agreement on

hand. It is for this reason, I am of the view that

Lion Engineering does not come to the aid of the

borrower in the case on hand and therefore learned

counsel's reference to the comparison with the IBA

Guidelines captured in paragraph No.12 of HRD

case law does not help the petitioner/borrower in

the case on hand. Learned counsel drew the

attention of this Court to Serial Nos.1 and 12.

S.Nos.1 and 12 are a replication of Serial Nos.1 and

12 of the Seventh Schedule of A and C Act. To be

noted, the case on hand, the sole Arbitrator is an

independent member of the Bar;

f) Another distinguishing feature on facts is,

there is nothing before this Court to demonstrate

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that the Arbitrator suffers from any disqualification

qua Fifth Schedule;

(iv) In the case on hand, neither the primary contract

(said loan agreement) nor the arbitration agreement i.e.,

arbitration clause in the primary contract are before this Court.

Only an extract from the claim statement is before this Court. It

is also not clear as to whether this is an ad-verbatim extract as

there is only a mention about arbitration clause.

(v) Petitioner/borrower submits that a copy of the said

loan agreement was not given to her. There is nothing to

demonstrate as to what prevented the petitioner/borrower from

asking for a copy at least at the (arbitration agreement)

invocation stage if not earlier.

(vi) No reason much less valid reason has been given for

not going before AT in spite of two notices from AT. If the

party i.e., petitioner/borrower was under some incapacity and if

any of the grounds under Section 34(2)(a)(i) of A and C Act is

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attracted, the dimension and dynamics of the case on hand may

have well been different.

5. This takes me to the second point. As already alluded to supra, the

primary contract (said loan agreement) is not before this Court. If the loan

agreement (primary contract) is before this Court it may well be possible to

test if there was any breach of sub-section (3) of Section 28 of A and C Act.

In the absence of the same, the argument that the directive of the AT that

monies can be recovered by attachment and sale of personal assets of the

property of the petitioner is outside the scope of primary contract is a non-

starter. The argument is, it is beyond the scope of the prayer in the claim

petition. I am unable to accept this argument as the prayer in the claim

petition reads as follows:

'It is therefore prayed that this Hon'ble Tribunal may be pleased to pass an award;

a) The respondent be ordered and an Award be passed directing the respondent to pay to the claimant an outstanding amount of Rs.4,43,828.53/- (Rupees Four Lakh(s) Forty Three Thousand Eight Hundred Twenty Eight And Paise Fifty Three Only) being due and payable till 07.01.2021, with further interest at the

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rate of 18% p.a. due and payable from the date of claim petition till the payment/realization thereof with all costs, charges and expenses that may be incurred from the date of filing of this claim till payment and/or realization by the claimant;

b) Any other relief that may be deemed just and proper in the facts and circumstances of the case be granted;

c) Be pleased to Award cost of the petition and Arbitration proceedings;'

Clause (b) of the prayer covers the above directive of the AT. In any event,

even if this directive is resorted to, said Bank will have to only file an

execution petition in the jurisdictional Civil Court/Execution Court to seek

attachment and sale of the properties (if any) of the borrower to realize the

monies .

6. To be noted, this is admittedly a case of unsecured loan. It is not a

case of secured loan where there is any mortgage. If it is a case of mortgage,

it may well be possible to say that mortgage or redemption suit is not

arbitrable. That is not the case here. It is admittedly a unsecured loan.

Therefore, even if that limb of the impugned award is resorted to by the

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award holder i.e., said Bank, the same can be done only by launching

execution proceedings in the jurisdictional Civil Court/Execution Court.

7. Ergo there is nothing egregious or any material to demonstrate

something implausible in the impugned award. In this regard this Court

before writing the concluding / operative portion reminds itself that a

Section 34 legal drill is not an appeal or revision. It is not even a full

fledged judicial review. It is a mere challenge to an arbitral award and test /

drill is to examine if any of the ground/grounds of challenge fits into the

slots adumbrated thereunder or if there is violation of any provisions of A

and C Act. To be noted, this Court repeatedly held that the slots adumbrated

in Section 34 are pigeon holes. As regards the procedure adopted for

Section 34 legal drill, Hon'ble Supreme Court in oft-quoted Fiza

Developers case law [Fiza Developers and Inter-Trade Private Limited Vs.

AMCI (India) Private Limited reported in (2009) 17 SCC 796] had made it

clear that a Section 34 legal exercise is one issue summary procedure.

Hon'ble Supreme Court has also gone on to explain that 'one issue' does not

mean that issue turns on lone issue but it only means that arbitral award

being put to challenge before Section 34 Court itself becomes an issue.

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This Fiza Developers principle was held to be a step in the right direction

by Hon'ble Supreme Court in subsequent judgment Emkay Global case

[Emkay Global Financial Services Ltd. v. Girdhar Sondhi reported in

(2018) 9 SCC 49] . It is also to be noted that in an oft-quoted Ssangyong

case law [Ssangyong Engineering and Construction Company Limited Vs.

National Highways Authority of India reported in (2019) 15 SCC 131],

Hon'ble Supreme Court has made it clear that in a Section 34 legal drill,

review on the merits of the matter is impermissible.

8. In the light of the narrative, discussion and dispositive reasoning

set out supra it follows as an inevitable sequitur that the petitioner has not

made out a case for admission or issue of notice. A further sequitur is

captioned Arb.OP fails. Therefore, Captioned Arb.OP is dismissed. There

shall be no order as to costs.

12.04.2022

Speaking/Non-speaking order Index : Yes / No gpa/nsa

https://www.mhc.tn.gov.in/judis Arb.O.P (Com.Div.) No.132 of 2022

M.SUNDAR.J.,

gpa/nsa

Arb.O.P (Com.Div.) No.132 of 2022

12.04.2022

https://www.mhc.tn.gov.in/judis