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Kopparthi Ramakumar Reddy & Another v/s M/s. Hinduja Leyland Finance Ltd., Represented by its Authorised Representative, Chennai

    O.P. No. 444 of 2020

    Decided On, 23 December 2020

    At, High Court of Judicature at Madras

    By, THE HONOURABLE MR. JUSTICE M. SUNDAR

    For the Petitioners: T. Sivagnanasambandan, Advocate. For the Respondent: K. Bhuvaneswari, V. Balasubramani, Advocates.



Judgment Text

(Prayer: Original Petition is filed under Section 34(2)(iii) of the Arbitration and Conciliation Act, 1996 seeking to set aside the ex parte arbitration award passed on 17.12.2018 by the sole arbitrator vide arbitration No.ACP No.HLF/SP/67 of 2018 and direct the first respondent to pay the cost of this petition including the 3% of the court fees paid on the award amount and grant such further or other order or orders as this Hon'ble Court may deem fit in the circumstances of the case and thus render justice.)

1. Captioned 'Original Petition' ('OP' for the sake of brevity and convenience) has been presented in this Court under section 34 of 'The Arbitration and Conciliation Act, 1996 (Act 26 of 1996)', which shall hereinafter be referred to as 'A and C Act' for the sake of brevity and convenience, with a prayer inter-alia to set aside an ex parte arbitral award bearing reference ACP No.HLF/SP/67 of 2018 made by a 'Arbitral Tribunal' ('AT' for the sake of brevity) constituted by a Sole Arbitrator.

2. Captioned OP was first listed on 28.10.2020 under the caption 'MOTION CASES' and it stood adjourned to the next day, i.e, 29.10.2010. Proceedings / orders made by this Court on 29.10.2020 and the next listing (thereafter) on 19.11.2020 are of relevance, this Court deems it appropriate to extract and reproduce the same infra.

Proceedings dated 29.10.2020 :

'Read this in conjunction with and in continuation of earlier proceedings made yesterday (28.10.2020), which reads as follows:

'Though captioned matter is listed under the cause list caption 'MOTION CASES', there is no representation for the petitioners (two petitioners) when the matter was called in this web-hearing on a video-conferencing platform.

2. However, with the intention of giving opportunity to the petitioners and learned counsel for petitioners, Registry to list this matter under the same caption (MOTION CASES) tomorrow i.e., 29.10.2020'.

2. Today, Mr.T.Sivagnanasambandan, learned counsel on record for two petitioners in captioned 'Original Petition' ('OP' for the sake of convenience and brevity) assisted by Mr.M.L.Ravi, (2nd named counsel on record for two petitioners in captioned OP) is before this Court in this web hearing on a video conferencing platform.

3. Adverting to earlier proceedings made yesterday, learned counsel tenders apology for not representing the matter yesterday. Learned counsel submits that he could not join the web hearing owing to technical glitch at his end. Be that as it may, captioned OP is an application under Section 34 of 'The Arbitration and Conciliation Act, 1996 (Act No.26 of 1996)', which shall hereinafter be referred to as 'A and C Act' for the sake of brevity. Captioned OP has been filed assailing an 'arbitral award dated 17.12.2018 bearing reference ACP.NO.HLF/SP/67 OF 2018' (hereinafter 'impugned award' for the sake of brevity) made by a 'Arbitral Tribunal' ('AT' for the sake of convenience) constituted by a sole arbitrator.

4. Learned counsel for petitioners submits that two respondents before AT, who are petitioners in captioned OP did not receive any notice from AT. Learned counsel draws the attention to a part of Paragraph No.3 of the impugned award which reads as follows:

'This Tribunal sent notice to both respondents for the hearing on 02.11.2018 along with the claim statement and documents sent to both the respondents have been returned. On 02.11.2018 the authorized representative for the claimant appeared. As the service of notice not completed on both the respondents, this tribunal found it fit to give another opportunity to both the respondents. On 26.11.2018 the authorised representative for the claimant appeared. The proceedings dated 26.11.2018 sent to both the respondents were neither been returned nor served.............'

5. In the light of aforementioned contention, Registry to requisition the records of AT pertaining to the impugned award. Registry to requisition the same from the learned sole Arbitrator namely, Mr.P.Suresh, Advocate/Arbitrator, New No.115, Old No.79, 1st Floor, Avvai Shanmugam Salai, Lloyds Road, Royapettah, Chennai-600 014. Registry to requisition the sole Arbitrator to submit the records of the AT pertaining to the impugned award in a sealed envelope in the office of the Registrar General of this Court and thereafter, place it as part of the case file in the next listing. Registry shall requisition AT through electronic modes of communication (subject to availability of address) besides conventional modes of service.

6. Issue notice to the sole respondent. Mr.V.Balasubramani, learned counsel with address for service at No.35/71, Armenian Street, Chennai-600 001, Email-Id: bblegal1999@gmail.com, Mobile No.:9789066272, who has by his own volition joined this web hearing today, accepts notice on behalf of sole respondent and undertakes to file Vakalatnama within a week from today i.e., by 05.11.2020.

7. List under the caption 'ADJOURNED ADMISSION' ON 19.11.2020.'

(Underlining made by this Court to supply emphasis and highlight)

Proceedings dated 19.11.2020 :

'Read this in conjunction with and in continuation of earlier proceedings dated 29.10.2020.

2. Today, Mr.V.Balasubramani, learned counsel who has accepted notice on behalf of sole respondent is before me in this web hearing on a video conferencing platform, but there is no representation for petitioners.

3. Be that as it may, with the intention of giving another opportunity to petitioners' counsel, list this matter under the same caption on Monday i.e., 23.11.2020.

4. In the interregnum, Registry to put up a note regarding requisition of records of Arbitral Tribunal, about which there is a direction in the previous proceedings dated 29.10.2020.

5. Learned counsel for sole respondent seeks permission to communicate this order, earlier proceedings dated 29.10.2020 and next listing date to the sole Arbitrator for the purpose of enabling sole Arbitrator to send the records of Arbitral Tribunal in a sealed envelope to the office of Registrar General of this Court. Permitted to do so. Learned counsel is permitted to do so through private modes of communication including available electronic modes.

6. List on 23.11.2020.'

(Underlining made by this Court to supply emphasis and highlight)

3. Thereafter, there were listings on 23.11.2020, 30.11.2020, 07.12.2020 and 10.12.2020, but the proceedings made in these listings are not essential for appreciating this order.

4. Thereafter, when the matter was listed on 17.12.2020, Mr.T.Sivagnanasambandan, learned counsel on record for two petitioners and Ms.K.Bhuvaneswari, learned counsel representing Mr.V.Balasubramani, counsel on record for the lone respondent were before this Court in a web hearing on a video conferencing platform, i.e., virtual hearing, both learned counsel consented for captioned OP being taken up for final disposal. Therefore, captioned OP was taken up for final disposal and heard out in full.

5. To be noted, pursuant to aforementioned 29.10.2020 and 19.11.2020 proceedings / orders, records of the AT qua impugned award has been placed before me and there shall be further discussion in this regard infra elsewhere in this order.

6. Captioned OP, as already alluded to supra, is an application under section 34 of the A and C Act, considering the limited legal landscape of section 34 and short statutory perimeter within which a section 34 legal drill should perambulate for testing a impugned award, factual matrix in a nutshell containing essential facts imperative for appreciating this order will suffice.

7. Short facts are that there is a loan agreement (hereinafter 'said contract' for the sake of brevity, clarity and convenience) dated 02.02.2018 between petitioners and respondent for the purchase of an Excavator vehicle which is described as 'JS 140 Excavator'; that a sum of Rs.32 lakhs was financed by respondent under said contract; that this principal sum together with finance charges of Rs.7,74,400/- and insurance charges totaling Rs.39,74,400/- had to be repaid in 46 monthly installments with the first installment on 07.03.2018 and the last installment on 07.12.2021; that the respondent alleging default by petitioners qua payment of installments appointed the sole arbitrator by invoking arbitration clause in the said agreement; that the sole arbitrator who constituted the AT entered upon reference and made an ex parte award, i.e., impugned award holding that petitioners are liable to pay a sum of Rs.39,89,638/-, directing sale of the Excavator which had already been repossessed by respondent and holding that respondent is entitled to recover the balance (if sale proceeds of the Excavator does not satisfy the award amount); that AT also mulcted petitioners with costs and held that Arbitrator's fee shall be payable by petitioners on one side and respondent on the other in two equal moieties; that captioned OP has been presented in this Court on 29.01.2019 assailing the impugned award.

8. Learned counsel for petitioners made several oral submissions inter-alia to the effect that the Excavator met with an accident; that there was an insurance claim; that petitioners' son met with an accident and made other submissions on these lines. These submissions may not be germane to a section 34 legal drill which this court is now concerned with. Suffice to say that the most relevant submission qua this section 34 legal drill is that petitioners' son met with an accident on 26.11.2018 when arbitral proceedings were held and therefore, petitioners could not attend the hearing.

9. In response to aforesaid submissions, learned counsel for respondent submitted that petitioners have evaded notices from AT. It was submitted that petitioners have received the impugned award in the very same address, to which notices were sent by AT and this by itself would demonstrate that petitioners have been evading notices from AT.

10. In reply, learned counsel for petitioners drew the attention of this Court to the impugned award, submitted that impugned award refers to a judgment of Hon'ble Supreme Court reported in (2009) 1 SCC 732. Learned counsel submitted that this is Kailash Rani Dang Vs. Rakesh Bala Aneja case, but this case is clearly distinguishable on facts, as that was a case where the noticee refused to receive notice.

11. This Court had the benefit of perusing the records of AT, i.e., arbitral proceedings qua impugned award. This Court carefully examined the records. A careful perusal of the records of AT and the manner in which the same have been sent to this court pursuant to aforementioned 29.10.2020 and 19.11.2020 proceedings / orders of this court, leaves this court with the considered view that the impugned award is liable to be set aside (even de hors the rival submissions set out supra) and the reasons are as follows:

(a) Firstly, the records of AT have been sent to this court by counsel on record for respondent. The scanned reproduction of the addressee and addressor portion of the envelope are as follows:

Addressee :

Addressor :

(b) More importantly, records of AT qua impugned award have been sent in a file under cover of a letter which is in the letter head of respondent's counsel and scanned reproduction of this covering letter is as follows:

(c) This Court had not directed the counsel for respondent to produce the arbitral records. On the contrary, vide 29.10.2020 proceedings, this court had directed the Registry to requisition records of AT from the sole arbitrator. This is articulated in paragraph 5 of 29.10.2020 proceedings. To be noted, this paragraph 5 (in the extract and reproduction supra) has been underlined to supply emphasis and highlight.

(d) After respondent's counsel entered appearance, on request from learned counsel for respondent, respondent counsel was permitted to communicate 29.10.2020 proceedings to the sole arbitrator for the purpose of enabling sole arbitrator to send records in a sealed envelope to the office of the Registrar General of this Court. This is set out in paragraph 5 of 19.11.2020 proceedings. To be noted, paragraph 5 in the two proceedings extracted and reproduced supra have been underlined for the purpose of ease of reference and for supplying emphasis.

(e) This Court has no hesitation in holding that the manner in which records of AT have been sent to this court is not only not in accordance with the proceedings / orders of this court, but it is also an infarct of section 18 of the A and C Act. To be noted, the principle that parties before AT should be treated with equality and there should be equal treatment to the parties before AT has been ingrained in section 18 of the A and C Act, which reads as follows:

'18. Equal treatment of parties.--The parties shall be treated with equality and each party shall be given a full opportunity to present his case.'

(f) The above principle is sanctus and nonderogable even if AT becomes functus officio post impugned award as this is a section 34 drill in which impugned award is being tested and section 34(2)(a) {on and from 30.08.2019 vide amending Act 33/2019 dated 09.08.2019} provides for certain grounds being established on the basis of the record of Arbitral Tribunal.

(g) The above infarct is fatal qua impugned award and in this regard, this court draws inspiration from the dicta laid down by Hon'ble Supreme Court in the oft quoted Associate Builders case being Associate Builders Vs. Delhi Development Authority reported in (2015) 3 SCC 49, wherein Hon'ble Supreme Court held that violation of any of the provisions of law / A and C Act sounds death knell to the award. Relevant paragraph in Associate Builders case is paragraph 42 and significant portions of this paragraph reads as follows:

“42. In the 1996 Act, this principle is substituted by the “patent illegality” principle which, in turn, contains three subheads:

42.1. (a) A contravention of the substantive law of India would result in the death knell of an arbitral award. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature......

42.2. (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality — for example if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside.'

(h) This court conscious of the obtaining position that impact of 23.10.2015 amendment to A and C Act vide Act 3 of 2016 which kicked in with retrospective effect on and from 23.10.2015 has been set out by Hon'ble Supreme Court in Ssangyong Engineering and Construction Company Limited Vs. National Highways Authority of India reported in (2019) 15 SCC 131 qua Associate Builders, but above principle laid down in Associate Builders remains unaltered.

(i) The second reason is, this court had the benefit of seeing the original award in the records of AT as well as the signed copy of the impugned award that was delivered to petitioners. It is seen that the engine number and chassis number of the Excavator are left blank in the impugned award. The relevant portions of the impugned award where engine and chassis numbers are blank are found in paragraphs 4 and 12 of the impugned award and scanned portion of the same reads as follows:

(j) To be noted, engine number and chassis number have not been mentioned any where in the impugned award, but there is a direction permitting the respondent to sell the Excavator and appropriate the sale proceeds. The award per se becomes a decree of Court under A and C Act. No elucidation is required to say that a decree of this nature is clearly opposed to fundamental policy of Indian law as there can not be a decree directing sale of Excavator without engine number and chassis number. There cannot be a decree of sale of movable property without description of the property qua essentials for identifying the movable property. This is also a case of patent illegality as it is an illegality on the face of the record which requires no inferential process to detect. Therefore, the impugned award is clearly vitiated for being in conflict with public policy of India and in contravention with fundamental policy of Indian law besides being patently illegal. To put it in statutory parlance, impugned award is liable to be aside under section 34(2)(b)(ii) read with clause (ii) of Explanation 1 and section 34(2A) of the A and C Act on grounds of conflict with public policy and patent illegality respectively.

(k) As already alluded to supra, captioned OP has been presented in this court on 29.01.2019 and therefore, applying Ssangyong principle being the dicta laid down by Hon'ble Supreme Court in Ssangyong Engineering and Construction Company Limited Vs. National Highways Authority of India reported in (2019) 15 SCC 131, captioned OP will be governed by post 23.10.2015 regime of the A and C Act or in other words, it will be governed by A and C Act as amended by the Amending Act 3 of 2016 which kicked in with retrospective effect on and from 23.10.2015. This is mentioned to say that patent illegality as a codified statutory ground now available vide sub section (2A) of section 34. It is also clear as day light that it is not a mere erroneous application of law and no reappreciation of evidence is required to say that there is complete non application of mind, impugned award has been made in a mechanical manner and it cannot be sustained as it per se becomes a decree of Court under the obtaining A and C Act, but impugned award is no decree at all in the eye of law as it is for sale of movable property with essential identifying particulars left blank.

(l) Thirdly, while the impugned award captures a factual scenario that Rs.32 lakhs is the amount that was financed and that the same was liable to be repaid with finance charge / insurance charge of Rs.7,74,400/- totaling Rs.39,74,400/- in 46 installments with the first installment beginning on 07.03.2018 and the last installment falling due on 07.12.2021 has not mentioned any where as to how many installments have been paid and when, so that there is some mention / discussion about delay / default. To be noted, respondent as claimant before AT also has averred that petitioners committed 'several defaults'. This is bare and bald to say the least. After setting out the rival pleadings and issues besides list of exhibits in paragraphs 1 to 7, the impugned award in paragraph 8 merely says that petitioners had paid only a few installments as detailed in the statement of accounts Ex.A.5 that too quite irregularly. Relevant portion of paragraph 8 reads as follows:

(m) There should be some discussion about Ex.A.5 statement of accounts or about number of installments paid / not paid / paid in part / paid but belatedly, etc., but there is none. Therefore, this court has no hesitation in coming to the conclusion that the impugned award has not stated the reasons upon which it is based. To be noted, this is a statutory requirement under sub section (3) of section 31 of A and C Act which reads as follows:

'31. Form and contents of arbitral award.--(1) x x x x x

(2) x x x x x x

(3) The arbitral award shall state the reasons upon which it is based, unless--

(a) the parties have agreed that no reasons are to be given, or

(b) the award is an arbitral award on agreed terms under section 30.'

(n) There is nothing in the records of AT placed before this Court to show that parties have agreed that no reasons are to be given and equally there is nothing to demonstrate that impugned award is on agreed terms under section 30 of the A and C Act. To be noted, it is not anybody's case either. Absent these two exceptions, there is clear breach of sub section (3) of section 31. Therefore

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, this also vitiates the impugned award and this infarcts of section 31(3) is fatal qua impugned award. (o) There is nothing before this Court either in the case file or in the impugned award that statement of accounts maintained by respondent has any sanctity qua The Bankers' Books Evidence Act, 1891. This court is conscious that AT is not bound by 'The Code of Civil Procedure, 1908' ('CPC' for the sake of brevity) and 'The Indian Evidence Act, 1872 (Act 1 of 1872)' ('Evidence Act' for the sake of brevity). This is ingrained in sub section (1) of section 19 of the A and C Act. Therefore, it is made clear that this court is not on CPC or Evidence Act, but it is on fundamental policy of Indian Law and one of the facets of the bedrock of such fundamental policy is what is ingrained in section 31(3), which has been alluded and delineated supra. (p) A perusal of the records of the AT shows that there are some postal acknowledgment cards qua petitioners and there are also some returned envelopes. Two of the envelopes have postal endorsement 'Refused'. The dates in the postal acknowledgment cards are not legible, readable, but returned envelopes are dated 17.10.2018 and 24.12.2018. This leaves this court with the opinion that procedural history as recorded in the impugned award also is not fully in tune and tandem with the records of AT. 12. As this court has found from the records of AT and the case file that the impugned award is liable to be dislodged / set aside, it may not be necessary to advert to Kailash Rani Dang case as the impugned award is being set aside on grounds de hors procedural history. 13. Registry is directed to retain the records of AT along with envelope and covering letter from the respondent's counsel dated 23.11.2020 in a sealed envelope and this is obviously for the purpose of reference in an intra court appeal, if that be so. There shall be a post script to this order also in this regard. 14. Owing to the narrative, discussion and dispositive reasoning supra, captioned OP is allowed and impugned award, i.e., ex parte arbitration award dated 17.12.2018 bearing reference ACP No.HLF/SP/67 of 2018 is set aside. This court refrains itself from imposing costs.
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