Full Text
O.M.P. 9/2005 & I.A. Nos. 168/2005 & 183/2005
NAVAL KISHORE ..... Petitioner
Through: Mr. Naresh K. Daksh, Advocate.
Through: Mr. S.K. Pruthi & Mr. Manoj Ahuja, Advocates.
115.
M/S HI-GLOW ..... Petitioner
AND
360.
DR. NAVAL KISHORE ..... Petitioner
AND
2009:DHC:5531
M/S TENDERCARE ..... Petitioner
DR. NAVAL KISHORE ..... Petitioner
AND
M/S TENDERCARE ..... Petitioner
JUDGMENT
1. Whether the Reporters of local papers may be allowed to see the judgment? NO. 2. To be referred to the Reporter or not? NO. 3. Whether the judgment should be reported in the Digest? No.
JUDGMENT
MANMOHAN, J: (Oral)
1. O.M.P. Nos. 9/2005, 10/2005, 669/2008, 670/2008, 671/2008 and 682/2008 have been filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “Act, 1996”) challenging the common arbitral Award dated 15th September, 2004. Consequently, the present batch of cases is being disposed of by a common judgment.
2. Mr. Naresh K. Daksh, learned counsel for petitioners namely the Guarantor and the legal heirs of deceased Principal borrower submitted that the Arbitrator had been appointed in the present case by an incompetent person. He stated that by virtue of Clause 18 of the Hire Purchase Agreements dated 01st November, 1995, 08th February, 1995 and 04th September, 1995 (hereinafter referred to as “H.P. Agreements”), the Managing Director of the owner i.e. M/s. Aruna Sugar Finance Limited had the exclusive authority and power to appoint a sole Arbitrator. Clause 18 of the H.P. Agreements is reproduced hereinbelow for ready reference: ―18. a) All disputes, differences and/or claims, arising out of this hire purchase agreement, whether during its continuation or thereafter, shall settled by arbitration in accordance with the provisions of Indian Arbitration Act, 1940 or any statutory amendments thereof and shall be referred to the sole arbitration Owner. The award given by such an arbitrator, shall be final and binding on the parties to this agreement. It is a term of this agreement that in the event of such an arbitrator, to whom the matter, has been originally referred, dying or being unable to act for any reason, the Managing Director of the Owner, at the time of such death of the arbitrator or his inability to act as arbitrator, shall appoint another person to act as arbitrator. Such a person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor.‖
3. Mr. Daksh stated that in the present case the power to appoint the Arbitrator had been exercised by the Chairman of the respondent-claimant company. In this connection, Mr. Daksh relied upon the respondent’s letter dated 01st February, 2000. The relevant portion of said letter reads as under: “Dear Sir, We are writing you this letter in connection with the dispute that has arisen between the undersigned and Mr. K. Kishore, proprietor of M/s Hi-Glow, New Delhi in relation to Hire Purchase agreement dated 1-11-1995. xxx xxx xxx The hirer has failed to resolve these disputes and the undersigned, through his representatives has failed in his effort to settle the matter amicably with the Hirer. The undersigned, therefore, invokes the Arbitration Clause (Clause 18(a)) in the Hire-Purchase agreement and appoints you as our Arbitrator for settlement of our dispute. The statement of claim would be forwarded to you in due course. Thanking You. Yours Faithfully, Sd/- N Srinivasan Chairman” by an arbitrator who had not been appointed by a competent and authorized person. In this connection, Mr. Daksh relied upon the following judgments:-
(i) A.M. Rasool Construction & Engineering Services Pvt. Ltd. vs.
National Buildings Construction Corporation Ltd. reported in 1998 1 AD (DELHI) 1008 wherein it has been held as under: “(1) Only a short point is involved in this appeal and that is whether in the absence of Project Director, who is to act as an arbitrator or to appoint somebody else as arbitrator, the Chairman-cum-Managing Director can appoint another person to be the arbitrator? (3) Appointment of an arbitrator is a matter of agreement between the parties. It is not possible for one of the parties to the arbitration agreement to unilaterally change the person who is to act as arbitrator or who is to nominate the person to act as an arbitrator. (7) In the instant case, clause 14 of the contract, which is reproduced at page 22 of the appeal papers, is the arbitration agreement between the parties. The said provision reads as under:- "14.Disputes if any relating to or arising out of the provisions of this Contract shall be referred to the Sole arbitration of the Project Director who may either himself arbitrate the dispute or refer the same for arbitration to some other officer of the Corporation other than the officers connected directly with the supervision of the works at work site. The decision of the arbitrator shall be final and binding on both the parties." (8) Clause 14 of the contract between the parties in clear terms establishes that both the parties to the agreement agree to the sole arbitration of the Project Director who is to undertake the arbitration either himself, or to appoint some other person of the Corporation other than the officers connected directly with the supervision of the works at work site to act as arbitrator. The said provision is certain and clear. (11) Counsel for the respondent submits that by virtue of which were vested in the Projects Director (Overseas Projects) were to be exercised by the Chairman-cum- Managing Director himself. The said Office Order reads as under:- "National Building Construction Corporation Limited (A Govt. of India Enterprise ) Team in Pursuit Of Excellence NBCC House LODHI Road NEW Delhi-110003 Office Order NO. 1686/90 In super-session of all previous office orders issued on this subject, the Chairman-cum- Managing Director is pleased to decide and direct that all the powers that were vested in the Projects Director (Overseas Projects) shall henceforth be exercised by the CMD himself, provided, however, the Chief Project Manager posted at the foreign Projects will continue to exercise the powers separately delegated to them.. sd/- (K.R. Sundaram) Chief Manager (Personnel)" (12) Clause 14 of the agreement between the parties contemplates arbitration by the Project Director and not by the Project Director (Overseas Project). The said office order, therefore, has no application to the facts and circumstances of the instant case. (13) In the circumstances, the appeal succeeds. The impugned order is set aside. The matter is remanded to the Hon'ble Single Judge to proceed in the matter in accordance with law, and to appoint an arbitrator as postulated by Section 20(4) of the Act.
(ii) Punjab State Cooperative Supply and Marketing Federation Ltd. &
Anr. vs. Lakhmir Singh Chadha & Co. and Ors. reported in 1998 (1) Arb.
10. According to Mr. Daksh, respondents-claimants were also not entitled to calculate interest @ 14% flat per annum for the period of thirty-six months as at that relevant time the PLR was 13% per annum.
11. On the other hand, Mr. S.K. Pruthi, learned counsel for respondentclaimant company stated that after the respondent-claimant was reorganised According to Mr. Pruthi, the functions of the Managing Director were delegated to Chairman of the re-organized company. In support of this plea Mr. Pruthi relied upon the resolution dated 21st November, 1998 which reads as under:- EXTRACT(S) FROM THE MINUTES OF THE MEETING OF BAORD OF DIRECTORS OF INDIA CEMENTS CAPITAL & FINANCE LIMITED HELD ON 21ST NOVEMBER, 1998 AT ‗DHUN BUILDING‘, 827, ANNA SALAI, CHENNAI – 600 002.
15. Appointment of Arbitrators: The Company‘s Lease/Hire Purchase agreements provide for settlement of all disputes and differences arising out of the said agreements through arbitration. As per the agreements the arbitrator has to be appointed by the Managing Director of the Company. It was suggested that in case of contracts already entered into by the Company, Chairman/President may be authorized to appointed arbitrators. After discussions it was: ―RESOLVED THAT the arbitration clause in the Lease/Hire Purchase agreements be and is hereby amended by substituting the word ‗Chairman/President‘ against the word ‗Managing Director.‖ ―RESOLVED FURTHER THAT Sri N. Srinivaisan, Chairman, be and is hereby authorized to appoint arbitrators in connection with all disputes, differences, and/or claims arising out of the Hire Purchase/Lease/Other agreements already entered into by the Company.‖
12. Mr. Pruthi submitted that the post of Managing Director is an office and ‘persona designata’ in terms of the arbitration clause and not an individual person. According to him, the person who performs the functions of Managing Director is deemed to be the authority to appoint an arbitrator. Mr. Pruthi in this connection referred to the order dated 07th February, 2001 passed by the learned Arbitrator. The relevant portion of the said order reads as under:
15. Undoubtedly in the present case the arbitrator has been appointed by the Chairman of the Claimant Company instead of the Managing Director. The argument of the learned Counsel for the Respondent that the Managing Director of M/s Aruna Sugars Finance Ltd. alone has the power to nominate the arbitrator, prima facie, appears to have considerable force, however, if the Chairman of the Company holds the office of the Managing Director as well or otherwise legally exercises the power of that office, there does not appear to be any legal infirmity in his invoking the arbitration clause, particularly when no prejudice is caused to the rights and interests of the Respondents. I am of the considered view that the claim, which is otherwise legally maintainable, cannot be defeated on the basis of mere technicalities. Therefore if the Claimant Company does not, for any reason, have the incumbent of the post of Managing Director or the said post has been merged with that of the Chairman, the Chairman, if he is duly authorized, can invoke the arbitration clause under the law.‖
13. Mr. Pruthi further denied that the arbitration clause had been unilaterally amended. He stated that the resolution dated 21st November, 1998 and the list of Directors of the new company had been filed with the the aforesaid change and, therefore, the said amendment cannot be said to be unilateral as the public at large was aware of the same.
14. Mr. Pruthi denied that the arbitration clause had not been invoked against Dr. Naval Kishore. He pointed out that in the claim statement filed by the respondent-claimant in March, 2000, Dr. Naval Kishore was respondent No.2. He further stated that petitioner’s reliance upon the respondent’s request letter addressed to the Arbitrator was of no consequence as the said letter specifically stated that the claim petition had been filed not only against Mr. K. Kishore but also against other
15. Mr. Pruthi also stated that notice had been issued by the Arbitrator to Dr. Naval Kishore on 22nd May, 2000 and, therefore, even if there was a dispute with regard to the initial invocation, the arbitration clause stood invoked against Dr. Naval Kishore on 22nd May, 2000 – which admittedly was during the period of limitation.
16. Mr. Pruthi further stated that the Arbitrator had never withdrawn from the arbitral proceedings and he stated that there was no order by which the Arbitrator had withdrawn from the said proceedings.
17. Mr. Pruthi also denied that the impugned Award was contrary to public policy. He stated that he had personally attended the arbitral proceedings and the order rejecting the petitioners’ applications filed under Sections 12 and 13 of the Act, 1996 had been passed only after a detailed hearing in which the petitioner’s counsel had made extensive arguments. He further stated that he was present in the proceedings when petitioner’s counsel Mr. Shailendra Babbar and Mr. Joginder Sukhija had misbehaved with the learned Arbitrator. In this connection he referred to para 32 of Arbitrator’s order dated 15th December, 2003 which reads as under:- “32. That on 14.11.2003 Shri Ajay Jain, Advocate filed his Vakalatnama and stated that now he would be the Counsel for the respondent No.2 Dr (Mrs.) Adarsh Kishore W/o Dr. Naval Kishore, respondent No.2 was also present. Shri K. Kishore was present with his Counsels Shri Joginder Sukhija and Shailendra Babbar. For claimants Shri S.K. Pruthi Advocate with Shri C.S. Krishna Murthi and Anuj Chandra, witness was present. Shri Ajay Jain Ld. Counsel for the respondent no.2 moved an orders dated 2.09.2003, 19.9.2003 and 29.10.2003. While arguing the application Shri Jain though appeared for the first time also made certain allegations against the Arbitrator but the same were in the tolerable limits. The said application was vehemently opposed by Shri S.K. Pruthi, Ld. Counsel for the claimant. After hearing the parties it was decided that there was no substance in the said application and order on the same will be passed separately and the parties were asked to cross-examine the witness of the claimants who was present as ever. On this Shailendra Babbar one of the Ld. Counsels for the respondent No. 1 started shouting and using unparliamentary language and making uncalled for insinuations against the Arbitrator. When the reasoning failed to work with Shri Babbar he was asked not to disturb the proceedings and leave if he did not want to participate. Shri Babbar did not still behave himself nor the respondent No.1 try to rein in his counsel in this Shri Sukhija, though relatively less vociferous, supported his colleague in his misconduct. Having sensed the ugly situation and taking note of the fact that the objective of the respondents was to somehow not to let the proceedings go ahead and stifle the same on one pretext or the other, the Arbitrator had to close the evidence, per force.‖
18. Mr. Pruthi also submitted that a mistake by the Arbitrator in recording the proceedings of one date cannot be a ground for setting aside the arbitral Award.
19. Mr. Pruthi also referred to Schedule-II of the H.P. Agreements which specifically provided rate of interest @ 14% flat per annum for a period of thirty-six months. He pointed out that the said Schedule had been signed by both the Principal Borrower as well as the Guarantor Dr. Naval Kishore, who was his son.
20. Mr. Pruthi further submitted that no compound interest had been awarded by the learned Arbitrator and only for the delayed period in accordance with the Clause 11 of the H.P. Agreements executed between the parties. The said Clause 11 reads as under: ―11. If default be made in payment of any instalment of the hire amount under this Agreement the Hirer shall pay to the Owner Additional Finance charges at the rate of 36 per cent per annum on the amount from time to time in arrears until payment thereof or determination of this agreement under the terms herein but this clause shall not in any way prejudice the owner‘s rights under the Agreement to seize or retake possession of the Machinery or to determine the hiring of the Agreement or otherwise.‖
21. He further submitted that in case there was any variation in the rate of interest and the EMIs were to be reduced, as alleged by the petitioner’s counsel, then the onus was on the petitioner to prove the reduced rate of interest before the Arbitral Tribunal which it failed to do in the present proceedings. He stated that despite number of opportunities, neither the petitioner placed on record any document to show that the interest rate had been reduced nor they cross-examined the respondent-claimant’s witnesses on this aspect.
22. Having heard the parties at length and having perused the impugned Award, I am of the view that it would be appropriate to first outline the circumstances in which a Court can interfere with an arbitration award passed under the Act, 1996. The Supreme Court in Delhi Development Authority Vs. R.S. Sharma and Company, New Delhi reported in (2008) 13 SCC 80 after referring to a catena of judgments has held that an arbitration award is open to interference by a court under Section 34(2) of the Act, 1996
(i) contrary to substantive provisions of law; or
(ii) contrary to the provisions of the Arbitration and
(iii) against the terms of the respective contract; or
(iv) patently illegal; or
(v) prejudicial to the rights of the parties.
23. Supreme Court has further held in the aforesaid judgment that an award can be set aside if it is contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or
(c) justice or morality.
24. An award can also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Supreme Court has also held that it is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India.
25. At the outset, I wish to point out that neither the execution of H.P. Agreements nor the fact of non-payment of loans was disputed by petitioners before this Court. The pleas raised by the petitioners in the present petitions are only technical and legal in nature.
26. In any event, in my opinion, neither the appointment of Arbitrator in the present case was by an incompetent person nor arbitration clause had been unilaterally amended by the respondents-claimants.
27. Initially when the H.P. Agreements were executed, the name of which was subsequently re-organised and its name was also changed to M/s. India Cement Capital and Finance Limited after taking all statutory permissions. From the documents placed on record, it is apparent that the functions of Managing Director of respondent-claimant company were transferred to its Chairman as the office of Managing Director of the respondent-claimant company was abolished.
28. In my view, unlike in A.M. Rasool Construction & Engineering’s case (supra), in the present case pursuant to the re-organization of the respondent-claimant company, the Chairman became the successor-ininterest of former Managing Director of the respondent-claimant company. In any event, no prejudice had been caused to the petitioners as under the H.P. Agreements executed between the parties, the power to appoint the Arbitrator stood vested with the respondent-claimant company and by virtue of an internal re-organization the power to appoint the Arbitrator had been exercised by its Chairman, the successor-in-interest of Managing Director of the respondent-claimant company. Moreover, re-organisation of the respondent-claimant company was an internal affair of the respondentclaimant company. The same was also in public domain inasmuch as the amended list of Directors and the amended Articles had been filed with the petitioners-objectors is irrelevant to the facts of the present case.
29. I further find that in the initial claim statement filed by respondents- May, 2000, Arbitrator had specifically ordered that notice be issued to Dr. Naval Kishore. In fact, the Arbitrator’s order dated 20th September, 2002 only states that as a matter of abundant precaution and to obviate any subsequent technical issue, another notice be issued to Dr. Naval Kishore. Consequently, in my opinion, invocation of arbitration clause against Dr. Naval Kishore was not barred by limitation.
30. I further find that the impugned Award is not contrary to public policy as petitioners had been given reasonable opportunity to prove their defences. The detailed order passed by the Arbitrator on petitioners’ application filed under Sections 12 and 13 of Act, 1996 clearly shows that petitioners had advanced extensive arguments before the Arbitrator. I am also in agreement with Mr. Pruthi’s argument that a mistake in recording of proceedings in one of the orders cannot be a ground for setting aside the entire arbitral Award. In fact, the Supreme Court in M/s. Construction India Vs. Secretary Works Department, Govt. of Orissa and Ors. reported in AIR 1998 SC 717 has held that, ―a mistake in recording the minutes of one date cannot be the ground for setting aside the arbitration Award.‖ In any event, as the admitted position is that amounts received under the H.P. Agreements have not been returned, petitioners are bound to repay the same to respondentclaimant company in accordance with the terms of H.P. Agreements.
31. On a careful perusal of the file, I did not find any order/letter by which the arbitrator had withdrawn himself from the proceedings.
32. As far as the argument that respondent-claimant was not entitled to calculate interest @ 14% flat per annum, I find that in Schedule-II of H.P. Agreements, the EMIs had been clearly worked out @14% flat per annum and the said Schedule had been signed by both the Principal borrower, namely, Mr. K. Kishore as well as his son, Dr. Naval Kishore who was the guarantor. Consequently, to raise a dispute at this stage with regard to interest @ 14% flat per annum, is not open to the petitioners. I am further in agreement with Mr. Pruthi that in case there was any variation in the rate of interest, the onus was on the petitioners to prove the same – which they had failed to discharge in the present proceedings.
33. In view of aforesaid, the impugned Award calls for no interference in Section 34 jurisdiction. Accordingly, present objection petitions are dismissed but with no order as to costs. MANMOHAN,J DECEMBER 18, 2009 js/rn