Aditya Birla Finance Ltd v. MVR Gas

5.1. Perusal of the above order shows that the arbitration proceedings initiated by Applicant before the sole Arbitrator was withdrawn and the said proceeding was closed with no order as to costs and with liberty to file afresh. The said order is passed on the request made by the Applicant vide application dated 29.01.2022 seeking withdrawal of the same.

6. The present Arbitration Application is resisted by Respondents who have filed their affidavit in reply dated 13.01.2023. Mr. Shah, learned Advocate for Respondents has drawn my attention to the affidavit-in-reply and contended that Respondents have raised various objections against Applicant seeking invocation of arbitration. At the outset, he would submit that the agreement between parties is unstamped and therefore in view of the provisions of the Maharashtra Stamp Act 1958, Applicant has failed to stamp the agreement. Onus was on the Applicant to do so and in view thereof, the arbitration agreement cannot be acted upon for appointment of the sole Arbitrator in terms of the law laid down by the Supreme Court of India. Next he would submit that the present arbitration proceedings as instituted refer to the Applicant’s notice of invocation dated 14.09.2020. He would submit that such an invocation of arbitration proceedings under that notice is not maintainable in view of the fact that the arbitration proceedings which had commenced pursuant to invocation of that notice dated 14.09.2020 were terminated by the erstwhile Arbitrator by his order dated 29.01.2022. He would submit that, in that view of the matter, once the proceedings invoked under the notice dated 14.09.2020 stood terminated, Applicant cannot place reliance on the same notice to invoke arbitration afresh under Section 21 of the said Act. He would therefore submit it be held that no notice of invocation of arbitration proceedings has given by Applicant in compliance of Section 21 of the said Act before filing the present Application. Therefore, the present Application is not maintainable.

6.1. Next he would submit that in the proceedings before the erstwhile Arbitrator appointed by Applicant, Respondents filed Application under Section 13 of the said Act challenging his appointment which was not decided and which remained pending. He would submit that before deciding the said Application, the erstwhile sole Arbitrator passed the order dated 29.01.2022 terminating the arbitration proceedings on the application of Applicant and granting liberty to Applicant to file afresh despite pendency of Respondents’ Section 13 application. He would submit that once the erstwhile Arbitrator terminated the proceedings before himself, his role became functus officio and in that view of the matter, he had no authority to give liberty to Applicant to seek claim for arbitration afresh. He would submit that once the arbitration proceedings were terminated by the erstwhile Arbitrator and the said order remained unchallenged, invocation of arbitration by the present Application is not maintainable in law.

7. Perusal of the affidavit however makes an interesting reading. Though Respondents have taken the aforesaid objections in reply to the Application, Respondents have without prejudice to their rights and contentions filed a fair reply. Perusal of paragraph No. 5 of the reply would suggest so. Respondents have admitted that Applicant provided loan facility to Respondent No. 1 as the principal borrower and Respondent Nos. 2 and 3 were the co-Applicants. Respondent NO. 3 has affirmed the affidavit-in-reply on behalf of all Respondents. Respondent No. 3 is the proprietor of Respondent No. 1. In the affidavit-in-reply, Respondents have clearly admitted that they received the loan and were required to pay the same by way of equated monthly installments / weekly basis but due to onslaught of Covid and inadvertence on their part, they were not able to maintain the minimum balance in their account which led to default. Respondents have also fairly stated that they had requested for time to regularize the loan and were also assured by representatives of Applicant of the same. The aforesaid submissions are clearly etched out by Respondents in paragraph Nos. 5.2, 5.3, 5.[4] & 5.[5] in their reply. Once the Respondents have admitted to have received monies, prima facie, Respondents cannot deny that a dispute has arisen due to non payment of the outstanding dues payable by Respondents.

8. In view of the above, the only question that would now arise for determination would be whether the invocation of arbitration is done correctly in consonance with the provisions of the said Act or otherwise?

9. In the light of the rival submissions, the arbitration clause in the present case clearly contemplates a two tier procedure. In the first place, an attempt is to be made for an amicable settlement of the dispute and in case of failure, the matter is to be referred to the sole Arbitrator to be appointed by the Applicant. Once there was default and Applicant had written to the Respondents and Respondents had not responded, the first tier of the procedure was exhausted. There is no dispute about this fact. In fact, Respondents have in their affidavit in reply agreed that there was a default on their part to pay the loan amount / installment. In that view of the matter, the only question that would now arise with respect to whether invocation vide notice dated 14.09.2020 is in consonance with the provisions of the said Act or otherwise. Two specific preliminary objections are raised and argued by Respondents; firstly that the transaction document is unstamped and secondly the invocation notice pertains to the first round of arbitration proceedings before the erstwhile sole Arbitrator and in so far as the present Application seeking appointment of Arbitrator is concerned, there is no invocation notice issued by Applicant at all for the same.

9.1. In so far as the first issue relating to invocation notice is concerned, it is clear that the Applicant has invoked arbitration vide notice dated 14.09.2020. Though the sole Arbitrator was appointed by the Applicant, it was at the Applicant’s own instance and application that the Applicant withdrew from the said proceedings. Termination of the said proceedings was not on merits of the matter. It was infact at the instance of the Applicant. There is no dispute with respect to the arbitration clause. Perusal of the affidavit-in-reply also clearly shows that there is no dispute whatsoever raised by the Respondents in so far as the default is concerned. The Respondents have on the contrary admitted to the default on their part due to the onslaught of Covid and inadvertence as categorically stated in paragraph No. 5.[3] of their affidavit-in-reply. In that view of the matter, Respondents’ submission that post termination of the arbitration proceedings, the Applicant has not invoked fresh arbitration proceedings under Section 21 of the said Act cannot be countenanced. The question as to whether the arbitration proceedings were terminated on merits is relevant in the present case. That, it is not the submissions of Respondents that since order of termination in the earlier proceedings was not set aside and hence Applicant was precluded from maintaining the present Application deserves to be rejected since Applicant cannot be required to challenge the order dated 29.01.2022 which was made at the instance of the Applicant itself. The submissions on behalf of Respondents that this is a separate claim in respect of the same relief hence also cannot be countenanced and stands rejected.

10. The issue of invocation of notice and compliance with the procedure under Section 21 of the said Act has been vehemently resisted by the Respondents in the present case. In support of their submissions, Respondents have relied upon the following decisions:- (i). D.P. Constrution Vs. Vishwaraj Entertainment Pvt Ltd[1]; (ii). Dilnawaaz Kohinoory Vs. Boman Kohinoor[2]; 1 Decision dated 06.07.2022 in Misc. Civil Application (Arbn) No. 31 of 2021 (Nagpur Bench)

2 Decision dated 14.09.2001 in Arbitration Application No. 143 of 2000 (iii). NBCC Ltd Vs. JG Engg Pvt Ltd[3]; (iv). Dakshin Haryani Bijli Vitran Nigam Ltd Vs. Navigany Technologies Ltd[4]; (v). Ratansingh & Ors. Vs. Union of India[5]; (vi). Bakhtawar Singh Vs. Sada Kuar[6]; (vii).Vidya Drolia Vs. Durga Trading Corporation[7].

10.1. It is the Respondents’ case that before filing of the present Arbitration Application, it was incumbent upon Applicant to invoke arbitration by issuing the statutory notice of invocation. Respondents would submit that reliance placed by Applicant on invocation notice dated 14.09.2020 would not suffice and be requisite to be considered as invocation notice in the present case in view of the fact that the learned erstwhile Arbitrator vide his order dated 29.01.2022 had terminated the arbitration proceedings initiated by Applicant. The above proposition however does not hold good. It needs to be stated that the order dated 29.01.2022 allowing Applicant to withdraw arbitration proceedings / claim with liberty to file afresh and close the said proceedings does not amount to final award or an order of termination of proceedings as contemplated by Respondents. Once invocation notice dated 14.09.2020 was given and accepted by Respondents, perusal of the same clearly contemplates default on the part of the Respondents in repayment of loan and dispute raised in

5 Order dated 14.03.2023 in Comm. Arbitration Application (L) No. 208 of 2022 respect thereof. In the affidavit-in-reply to the present Application, Respondents have admitted that default occurred due to Covid and inadvertence on their part. The decisions referred to and relied upon by Respondents are clearly distinguishable.

10.2. In the case of DP Construction (2nd supra), it is seen that arbitration was never invoked in clear terms by the Applicant therein but it was nearly mentioned as “….. but to explore redressal under arbitration clause …..” in the inter se communication between the parties. In that view of the matter, the Bombay High Court held that the Application under Section 11 was not maintainable as premature whereas the facts in the present case are different and clearly distinguishable.

10.3. In the case of Dilnawaaz Kohinoory (3rd supra), the question before the Court was whether after reference under Section 11 and closure or proceedings under Section 25, it will be open under Section 11 without getting the order passed under Section 25 set aside, to refer to the parties back to the arbitration for the very same subject matter. Admittedly, in the present case there is no termination of the proceedings under Section 25 due to default of parties. In the present case, Applicant filed Application seeking withdrawal of proceedings with liberty to initiate appropriate application / proceedings for seeking appointment of Arbitrator. Hence, the facts are materially different.

10.4. In the case of NBCC Ltd (4th supra), the case at hand was in respect of the award to be passed after tenure of the arbitral tribunal expired which is not applicable to the present case.

10.5. In the case of Dakshin Haryana Bijli Vitran Nigam Ltd (5th supra), in the facts in that case the Arbitrator gave a dissenting award against the remaining Arbitrators and the final award at a subsequent stage which was found to be contrary to the rules of ICA which contemplated that dissenting award shall be made contemporarily alongwith / to the final award and not subsequent thereto.

10.6. In the case of Ratansingh & Ors (6th supra), Applicant has submitted that the said case is still pending before this Court.

10.7. In the case of Baktavar Singh (7th supra), the issue in the said case pertained to limitation which is not applicable to the issuance of invocation notice in the present case as the invocation notice is well within the law of limitation.

10.8. In view of the above, it is clear that there is no requirement in law or no provision under the said Act which requires reinvocation of the arbitration agreement between the parties in the present case. The arbitration invocation notice dated 14.09.2020 holds good for the purpose of filing the present Application seeking appointment of Arbitrator.

11. The Respondents’ have also raised the ground of insufficient stamping. In the recent decision of M/s. N.N. Global Mercantile Pvt. Ltd. Vs. M/s. Indo Unique Flame Ltd. and Ors.8, the Constitution Bench of the Supreme Court has ruled that an unstamped instrument without the required stamp duty is not legally enforceable. If such an instrument with an arbitration clause is presented in a Section 11 Petition under the said Act, the Court must seize the instrument. That only after impounding the instrument, ensuring payment of stamp duty and obtaining the endorsement under Section 42 of the Stamp Act can the Court proceed with the Petition. That without proper stamping the Arbitration Agreement within the unstamped instrument has no legal validity. That under the provisions of Section 2(h) and 2(g) of the Contract Act and Sections 33 and 35 of the Stamp Act, an unstamped agreement lacks legal enforceability and cannot be used as evidence in Court or before a public authority. That until properly stamped in accordance with the Stamp Act, an agreement without the necessary stamp or insufficient stamping is considered void and nonexistent in legal terms.

12. I am bound by the above ruling of the Supreme Court dated 25.04.2023 passed in Civil Appeal No(s). 3802 – 3803 of 2020 in the case of M/s. N.N. Global Mercantile Pvt. Ltd. (supra) which is alluded to herein above. This matter was heard by me finally on 29.03.2023 and the above decision was given on 25.04.2023. In the interregnum the judgment was reserved.

13. Hence, in view of the above observations and findings, it is directed that the Loan Application Form dated 25.10.2019 (Exh. “B”), the Acknowledgment Form (Exh. “C”) and the Standard Terms and Conditions Document dated 25.10.2019 be impounded by the learned Prothonotary and Senior Master of this Court and sent to the Competent Authority under the Stamp Act for stamping in accordance with law. It shall be open to the Applicant to deposit the insufficient stamp duty in accordance with law after adjudication and thereafter approach the Court for its enforcement. I clarify that I have not opined on any of the other issues which have been argued and alluded to herein above on merits.

14. With the above directions, Arbitration Application is disposed. [ MILIND N. JADHAV, J. ] Amberkar MOHAN AMBERKAR