Notice Stating Right To Initiate Arbitration Not A Notice Under Section 21 of A&C Act: Delhi High Court

Case Title:
Shriram Transport Finance Co. Ltd vs Shri Narender Singh

Date of Order:
October 13, 2022

Bench:
Hon'ble Mr. Justice Rajiv Shakdher
Hon'ble Ms Justice Tara Vitasta Ganju

Parties:
Appellant- Shriram Transport Finance Co. Ltd
Respondents- Shri Narender Singh

SUBJECT

The appeal, in this case, was filed against the judgment of the learned District Judge which allowed the petition seeking to set aside the Arbitral Award dated 16.07.2019 on the grounds that there was non-compliance with Section 21 of the Arbitration and Conciliation Act, 1996 and that the arbitrator had not made requisite disclosure as required by the same. Since it was noticed that the Appeal was wrongly filed under the provisions of Section 37(1)(b) instead of Section 37(1)(c) of the Act by the Appellant Company, this appeal was treated under Section 37(1)(c) of the Act. It was found that the learned arbitrator who had been authorised to deal with the dispute between the parties had similarly been authorised by the appellant on earlier occasions. The respondent was not aware of this past association. The respondent submitted a petition for setting aside the arbitral award under Section 34 of the Act. This was allowed by the District Judge. This order has been appealed against in this case.

IMPORTANT PROVISIONS

• Section 21 of The Arbitration And Conciliation Act, 1996- This section is regarding the commencement of arbitral proceedings. It states that unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence only on the date on which a request for that dispute to be referred to arbitration is received by the respondent.
• Section 12 of The Arbitration and Conciliation Act, 1996- This section deals with the grounds for a challenge to be raised against the appointment of an arbitrator. It is stated that when any such person is approached regarding any such appointment as an arbitrator, any relevant information that is likely to give rise to justifiable doubts on his independence and impartiality to hold such position, shall be disclosed.
• Section 37 (1) (b) of The Arbitration and Conciliation Act, 1996- This section is regarding appealable orders to the Court to hear appeals on original decrees. It says that appeals shall lie in cases where an arbitral award is to be set aside or is refused to be set aside by the parties.

OVERVIEW

• The respondent had purchased a vehicle on loan from the appellant by a loan agreement dated 16.09.2014 for an amount of Rs.6,00,000. However, due to certain 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 payment of Rs.4,70,248/ as on 12.09.2018. It was also mentioned that the Arbitration clause would be invoked if the respondent failed to make such payment.
• The Appellant Company appointed Shri B.L. Garg (Retd. ADJ) as the Sole Arbitrator to adjudicate the disputes 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.
• The claim that the respondent had appeared before the arbitrator on 18.03.2019 and the case was fixed then, was contended inter-alia by the respondent. In the respondent's reply/objections, it was 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.
• The respondent stated that on 20.07.2019, he received the award and that it was only on its perusal, that he came to know that ex-parte evidence was led by the authorised representative of the appellant on 04.07.2019, and that 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 along with interest at the rate of 18% per annum and a sum of Rs. 12,000 as costs of these proceedings to the appellant in terms of the Arbitral Award.
• To the contention made by the appellant company 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, it was held by the learned District Judge that 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. The judge set aside the award stating that there was no compliance with the provisions of Sections 12 and 21 of the Act.
• This judgment of the District Judge was contended by the appellant in this case.

ISSUES RAISED

• Whether the commencement of arbitral proceedings in respect of a particular dispute commence can be considered maintainable of the respondent has not received any notification disclosing any relevant information regarding the same.
• Whether the challenge made by the respondent was in terms of the provision of sub-section (2) of Section 13 of the Act was maintainable.
• Whether it was mandatory for the arbitrator to have disclosed any previous association with the appellant company.

ARGUMENTS ADVANCED BY THE APPELLANT

• The appellants argued that under Section 34 the petition filed by the respondent is barred by limitation as it was filed after three months of the date of the Arbitral Award. It was further contended that the objections filed by the appellant do not fall within the purview of Section 34(2) of the Act and thus they are liable to be dismissed. It was also alleged that the respondent has not approached the Court with clean hands.
• Letters dated 20.09.2018 and 27.09.2018 that informed the respondent regarding arbitral proceedings were put forth in order to clarify the compliance with Section 21 of the Act.
• It was argued that there was no violation of Section 12 of the Act, as a letter/notice dated 11.02.2019 sent by Shri B.L. Garg (Retd. ADJ and the Arbitrator) stating that he had been appointed by the company, does not contain any reference to the disclosure as mandated 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 before the District Judge as well as before the present Court.

ARGUMENTS ADVANCED BY THE RESPONDENT

• It was claimed by the respondent that the arbitrator did not give him any opportunity and did not send him notice or information about the dates of July 4 and July 16, and that the proceedings were carried out in a hasty manner.
• It was further argued that the arbitrator is a frequent arbitrator for the appellant and has rendered similar ex-parte awards in the appellant's favour in the past. It was argued by the respondent that all these circumstances raise doubt on the conduct of the arbitrator. Along with that, the fact that the non-disclosure as mandated under Section 12 of the Act has also not been made are grounds to set aside the arbitral award, being opposed to the fundamental policy of India.

JUDGEMENT ANALYSIS

• The time period put forward under Sub-section (3) of Section 34, is that it has to be made within three months from the date of receipt of the Arbitral Award. It also says 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 means of an application filed under this Section. Since the Arbitral Award was received by the respondent on 20.07.2019, and the application was made on 18.10.2019, it 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.
• It was also argued by the appellant that it has wrongly been held in the Impugned Judgment, that the provisions of Section 21 of the Act have not been complied with. This was also wrong as such compliance had been done.
• According to Article 15 of the loan agreement, "all disputes, differences and/or claims" between the parties, were to be referred to arbitration by a sole arbitrator who is "to be nominated/appointed by Shriram" that is, the appellant company.
• The arbitral record filed by the appellant company shows that in a letter addressed by the appellant company to the respondent it was stated that if 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. However, the Court found that the letter is not clear about the identity of the arbitrator, and does not follow the requirements set forth in the loan agreement regarding authorising an arbitrator. The letter sent by the company to the arbitrator appointing him as sole arbitrator to adjudicate their differences with the respondent, was also not brought to the knowledge of the respondent. According to Section 21 of the Act, the commencement of such arbitral proceedings is only from the date on which the respondent receives such arbitration request. Section 21 read with Section 34 of the Act proves that if such notice regarding arbitral proceedings to be made is not sent to the respondent, the award may be set aside.
• The letters dated 20.09.2018 and 27.09.2018 that the appellant company has put forth in order to show compliance with Section 21 of the Act, were found by the Court to be completely misconceived. This letter of 20.09.2018 was only a unilateral communication that did not have any details about the identity of the arbitrator or the procedure being followed. Mere initiation of such proceedings were mentioned in it. No consensus was sought with the respondent in such an appointment. It is also not clear whether the respondent had received such a letter.
• And regarding the letter dated 27.09.2018, It was neither sent nor received to and by the respondent. It was only sent to the arbitrator. This letter could not qualify to be the notice of commencement of proceedings either. The presence of any agreement for waiver between the parties is also missing. Thus the arbitral proceedings made by the appellant were found not in accordance with Section 21 of the Act.
• Regarding the second objection in the appeal raised by the company, that there was no violation of Section 12 of the Act, it was found by the Court that the letter/notice dated 11.02.2019 addressed by Shri B.L. Garg (Retd. ADJ and the Arbitrator) stating that he had been appointed by the company, does not contain any reference to the disclosure as mandated 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 before the District Judge as well as before the present Court.
• However the Court affirmed that Section 12(1)(a) of the Act, clearly 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 justifiable doubts as to his independence or impartiality. Relevant provisions under sub-section 1,2, and 3 were quoted. These were guiding factors in deciding the independence and impartiality of the arbitrator.
• The appellant company also did not dispute the fact that the arbitrator has acted on several occasions for them. This was also not disclosed to the parties beforehand. If he has been appointed by the company before, Section 12 (1) a and (2) a makes it mandatory to disclose such information. This was done neither in the early stage nor in the later stage of proceedings.
• Another ground put forth by the appellants to invalidate the respondent’s petition was that the respondent had not objected to the appointment of the arbitrator during the proceedings and hence could not raise such an objection in this stage. However, the court referred Section 12(3)(a) of the Act which makes it incumbent for an arbitrator to make disclosure of any circumstances which would give rise to justifiable doubts as to his independence or impartiality in the proceedings.
• The sub-section (2) of Section 13 of the Act states how/when an arbitrator must be challenged. Such a challenge can be made within 15 days or after becoming aware of the constitution of the arbitrator/arbitral tribunal, or after becoming aware of the circumstances referred to in Section 12(3)(a) or (b) of the Act. The Court found that as no notice as mentioned under the provisions of Section 21 of the Act was ever received by the respondent, such challenge could not have been made by him in any stage of the proceedings. However he had appeared before the arbitrator for hearings on 18.03 2019 and 23.04.2019. On 31.05.2019, the respondent was unable to appear on time and was informed by the arbitrator that the proceedings were closed.
• Thus the respondent was proceeded in his absence, that is, ex-parte, without recording 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, only the appellant company was present and not the respondent.
• Though the respondent had not challenged the independent nature or impartiality of the arbitrator within 15 days as mandated by the Act, the arbitrator had also not disclosed the fact of his previous association with the company. Because of this, there was no reason for the respondent to doubt his authority. This was why the challenge was made by him on coming to know the past association of the arbitrator and the company.
• It was also held by the Court that the scope and ambit of a challenge under Sections 34 and 37 of the Act were no more res integra, referring to recent judgements of the Court. That is it has been examined in several recent instances. Relevant judgements were cited to conclude that though interference is curtailed in the exercise of powers under Section 37 of the Act, in arbitral proceedings wherein the illegality goes to the very root of the matter, interference by the Court is warranted especially when the arbitrator’s conduct and impartiality is in doubt.
• It was concluded that there has been non-compliance on the part of the appellants with Section 21 of the Act and the arbitrator's disclosure as mandated in Section 12 of the Act was also absent. Thus, any award rendered by such an arbitrator, as such, cannot be sustained and had to be set aside as rightly judged by the District Judge’s impugned judgement. Thus accordingly the appeal was found to be misconceived and was dismissed.

CONCLUSION

Section 12(1)(a) of the Act, clearly 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 justifiable doubts as to his independence or impartiality. These were guiding factors in deciding the independence and impartiality of the arbitrator. The contention that the respondent did not object the arbitrator’s authority within the speculated time period does not stand as this provision was not complied with by the appellants. This judgement furthers the ambit of scope of challenges of this nature that helps retain the accountability of arbitration proceedings in our judicial system.

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