TaxTMI 
TaxTMI 
2022 (10) TMI 1296
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....is non-compliance of Section 21 of the Act; (ii) The Arbitrator did not make the requisite disclosure as is required under Section 12 of the Act. 1.1 At the outset, it is noticed that the Appeal is wrongly filed under the provisions of Section 37(1)(b) instead of Section 37(1)(c) of the Act by the Appellant Company. Accordingly, this Appeal is treated as being filed under Section 37(1)(c) of the Act. 2. The matter was listed before this Court on 10.11.2021, wherein this Court recorded as follows: "5. On being queried, Mr. Bharat Singh, who appears for the appellant, does not dispute the fact that, the learned arbitrator has been engaged on earlier occasions by the appellant. 6. At the request of Mr Singh, list the matter on 14.12.2021. 7. In the meanwhile, Mr Bharat will file the entire record which was placed before the learned arbitrator. The record will be duly indexed and paginated. 8. Furthermore, Mr Bharat will file a note, not exceeding two pages, indicating therein, the ground(s) on which the appellant wishes to assail the impugned judgment" 2.1 We are informed by the Counsel for the Appellant Company that the Arbitral r....
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....were closed and that the outcome of the proceedings would be sent to him by post. 3.5 The Respondent stated that on 20.07.2019, he received the Arbitral Award dated 16.07.2019 (hereinafter "the Arbitral Award"). The Respondent further stated that it was only on a perusal of the Arbitral Award, that the Respondent came to know that ex-parte evidence was led by the Authorised Representative of the Appellant Company on 04.07.2019 and 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/- (Rupees Four Lakh Seventy Thousand Two Hundred and Forty Eight) along with interest at the rate of 18% per annum and a sum of Rs.12,000/- (Rupees Twelve Thousand) as costs of these proceedings to the Appellant Company in terms of the Arbitral Award. 3.6 The Respondent filed a Petition under Section 34 of the Act for setting aside the Arbitral Award. It was stated by the Respondent that the Arbitrator did not give him any opportunity nor send him a notice or information of the dates of 04.07.2019 and 16.07.2019 and that the proceedings were conducted by the Arbitrator in a hasty manner. It was f....
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....ation for setting aside an Arbitral Award is to be made within three months from the date of receipt of the Arbitral Award. The proviso thereto also sets forth 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 an Application filed under this Section. Since the Arbitral Award was received by Respondent on 20.07.2019, the Application made by the Respondent on 18.10.2019 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. 7. The next challenge made by the Appellant Company is, that it has wrongly been held in the Impugned Judgment, that the provisions of Section 21 of the Act have not been complied with, when in fact, such, compliance was done. The Appellant Company has relied on letters dated 20.09.2018 and 27.09.2018 to contend that the procedure under Section 21 of the Act in this regard. 7.1 It is further submitted by the Appellant Company that the learned District Judge had wrongly relied on Alupro Building Systems Pvt. Ltd. v. Ozone Overseas Pv....
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....d below: "7. Hence kindly take Note that you addresses are advised to pay and clear entire outstanding dues amounting to Rs. 470248/- as on date 12/09/2018 and also with accrued interest/Penal all other charges till the date of repayment/realization and charges, within 7 days on the receipt of this notice, failing which company will refer the matter for arbitration. 8. If you have failed to comply with the requisitions contained in notices, the disputes, differences and claims shall be deemed to have arisen under the said Agreement and the said disputes, differences and claim shall stand referred to the Arbitration. 9. If you are failed to pay the outstanding amount as per out [sic: our] loan agreement ARTICAL [sic: Article] No. 15. We have a right to initiate arbitration processing. So we will initiate the arbitration proceeding" [Emphasis is ours] 8.4 From a plain reading of this letter, two things are clear: (i) The letter dated 20.09.2018 merely states that the Appellant Company has a right to initiate Arbitration proceedings so they will initiate such proceedings; (ii) This letter does not name any person as an Arbitrato....
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.... of an Arbitrator by one of the parties, there has to be a consensus for such appointment and as such, the notice under Section 21 of the Act serves an important purpose of facilitating such a consensus on the appointment of an Arbitrator. It was further held in Alupro Building case (supra) that the parties may opt to waive the requirement of notice under Section 21 of the Act. However, in the absence of such a waiver, this provision must be given full effect to. 9.4 We are in agreement with the principles as expressed in the decision of Alupro Building case (supra), which are enunciated below: (i) The party to the Arbitration Agreement against whom a claim is made should know what the claims are. The notice under Section 21 of the Act provides an opportunity to such party to point out if some of the claims are time barred or barred by law or untenable in fact or if there are counter-claims. (ii) Where the parties have agreed on a procedure for appointment, whether or not such procedure has been followed, will not be known to the other party unless such a notice is received. (iii) It is necessary for the party making an appointment to let the other par....
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....t Company that there was no violation of Section 12 of the Act. It has been held by the learned District Judge that the letter/notice dated 11.02.2019, sent by the Arbitrator to the parties, did not furnish the mandatory disclosure 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 in the present Appeal. 11.1 A perusal of the letter/notice dated 11.02.2019 addressed by Shri B.L. Garg (Retd. ADJ and the Arbitrator) states that he had been appointed by the Appellant Company, as the Sole Arbitrator to decide the disputes that have arisen between the Appellant Company and the Respondent. The letter/notice is addressed to the Appellant Company as well as the Respondent. The letter did not contain any reference to the disclosure as mandated under Section 12 of the Act. 11.2 The letter/notice dated 11.02.2019, is reproduced below: "BEFORE SHRI B.L.GARG. ARBITRATOR. (Addl. District &Sessions Judge (Retd) ....... SPEED/REGD. POST FILE NO. ARB/BLG/7528/2019 Dated.11-02-2019. IN THE MATTER OF ARBITRATION BETWEEN SHRIRA....
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.... in performing his adjudicatory role and, therefore, must be independent of the parties and impartial as well. 12.2 The Counsel for the Appellant Company, has contended that the provisions of Section 12 and the Fifth and Sixth Schedules of the Act do not state that it is mandatory for the Arbitrator to make any such disclosure and hence the non-disclosure by the Arbitrator was not a ground to set aside the Arbitral Award. 13. We are unable to agree with this submission. Section 12 and Fifth, Sixth and Seventh Schedules have been inserted in the Act, pursuant to the 2016 amendment (Act 3 of 2016). Sub-section (1) and (2) of Section 12 of the Act are relevant in this regard. 13.1 Section 12(1)(a) of the Act, 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. The disclosure is clearly mandatory. It reads as follows: "Section 12. Grounds for challenge. - (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any cir....
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....o his independence or impartiality. He is also to disclose whether he can devote sufficient time to the arbitration, in particular to be able to complete the entire arbitration within a period of 12 months. Such disclosure is to be made in a form specified in the Sixth Schedule, grounds stated in the Fifth Schedule being a guide in determining whether such circumstances exist...." [Emphasis is ours] 14. It has not been disputed by the Counsel for the Appellant Company that the Arbitrator is the regular Arbitrator for the parties and has acted on various occasions for the Appellant Company. This fact was also affirmed by the Counsel for the Appellant Company, as noted in our Order dated 10.11.2021. However, this fact was never disclosed by the Sole Arbitrator to the parties in the format specified in the Sixth Schedule or otherwise. 14.1 The only exception to the above circumstances is Explanation 3 to the Fifth Schedule, which, however, is inapplicable to the present case. Explanation 3 states as follows: "For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to....
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....losure either at the initial stage or thereafter, during the pendency of the proceedings. 15. The effect of such non disclosure as is required by Section 12 read with the Fifth Schedule of the Act is required to be seen. The law in regard to this provision of the Act is well settled. The Supreme Court, in a Judgment titled Bharat Broadband Network Limited v. United Telecoms Limited reported as (2019) 5 SCC 755, while dealing with the law, in relation to Section 12 and the Fifth and Sixth Schedules of the Act, has held that the disclosures under the Act, are required to be made and where these are not complied with, the Arbitral appointment may be challenged. The relevant extract is below: "14. From a conspectus of the above decisions, it is clear that Section 12(1), as substituted by the Arbitration and Conciliation (Amendment) Act, 2015 ["the Amendment Act, 2015"], makes it clear that when a person is approached in connection with his possible appointment as an arbitrator, it is his duty to disclose in writing any circumstances which are likely to give rise to justifiable doubts as to his independence or impartiality. The disclosure is to be made in the form specified ....
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....f the arbitrator/arbitrators, the Tribunal must then continue the arbitral proceedings under Section 13(4) and make an award. It is only after such award is made, that the party challenging the arbitrator's appointment on grounds contained in the Fifth Schedule may make an application for setting aside the arbitral award in accordance with Section 34 on the aforesaid grounds...." [Emphasis is ours] 16. The Appellant Company in ground „C‟ of this Appeal has submitted that since the Respondent did not object to the appointment of the Arbitrator during the Arbitral proceedings and was, therefore, precluded from raising this objection in its Petition under Section 34 of the Act. 16.1 In order to discuss the challenge raised, it is necessary to set forth the relevant provisions of Section 13 of the Act. Section 13 of the Act is to be read with the provisions of Section 12 of the Act. The relevant extract of Section 13 of the Act reads as follows: "13. Challenge procedure." (1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator. (2) Failing any agreement referred to in sub-section (1),....
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....and was informed by the Arbitrator that the proceedings were closed. 16.5 A perusal of the order sheets of the Arbitrator [see pages 134-135 of the case file] however shows that on 31.05.2019, the Respondent was proceeded ex-parte without recording the factum of 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, there was appearance by the Appellant Company and not by the Respondent who was ex-parte. 16.6 The question that therefore arises is whether the challenge made by the Respondent was in terms of the provision of Sub-section (2) of Section 13 of the Act. 16.7 As discussed, the phrase referred to in Section 13(2) of the Act is "or after becoming aware of any circumstances referred to in sub-section (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal". Admittedly, the Respondent did appear on two dates (18.03.2019 and 23.04.2019) before the Arbitrator without making any such challenge, hence the challenge was not made within 15 days of the constitution of the Arbitral Tribunal. However, the ....
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..... Wednesbury Corpn., [1948] 1 K.B. 223 (CA)] reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract. 12. It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2) (b)(ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. .... 14. As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the Court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise....