Single Judge held that Section 9 application seeking seizure of assets based solely on an arbitration award cannot be admitted due to prima facie procedural impropriety, lack of arbitrator independence, and violation of natural justice.
Applications dismissed. Liberty granted to applicant to execute award in accordance with law.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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IN THE HIGH COURT OF JUDICATURE AT MADRAS
(ORDINARY ORIGINAL CIVIL JURISDICTION)
FRIDAY, THE 9TH DAY OF MARCH 2018
THE HON'BLE DR. JUSTICE ANITA SUMANTH
A. Nos.775 TO 777 of 2018
A. No.775 of 2018
In the matter of Arbitration and Conciliation Act, 1996 And In the matter of disputes between M/s.HDB Financial Services Ltd. And Mr.G.Raghupathy & Another Arising under Loan Agreement No.1855169 Dated 29.09.2016
M/s.HDB Financial Services Ltd. Represented by its Authorised Signatory, Mr.T.Kathiravan, Having office at: New No.128/4F, Old Door No.53 A
4th Floor, M.N.Office Complex, Greams Road,
Chennai – 600 006.
.. Applicant
Vs.
1.Mr.G.Raghupathy No.29/30, Perumal Koil Street, Periya Obulapuram Post, Gummidipoondi, Thiruvallur HO – 601 201.
2.G.Muthuraman No.32, Perumal Koil Street,
Periya Obulapuram Post, Gummidipoondi, Thiruvallur HO – 601 201.
..Respondents
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A. No.776 of 2018
In the matter of Arbitration and Conciliation Act, 1996
And
In the matter of disputes between M/s.HDB Financial Services Ltd. And Mr.S C P Dhanapal Arising under Loan Agreement No.1339690 Dated 09.02.2016.
M/s.HDB Financial Services Ltd. Represented by its Authorised Signatory, Mr.T.Kathiravan, Having office at: New No.128/4F, Old Door No.53 A
4th Floor, M.N.Office Complex,
Greams Road, Chennai – 600 006.
.. Applicant
Vs.
Mr.S C P Dhanapal No.141, N N Lakshmi Sri Street, Janaki Nagar, Valasaravakkam, Chennai – 600 087.
..Respondent
A. No.777 of 2018
In the matter of Arbitration and Conciliation Act, 1996 And
In the matter of disputes between M/s.HDB Financial Services Ltd. And Mr.Prakash Sakthivel Arising under Loan Agreement No.1323022 Dated 31.01.2016.
M/s.HDB Financial Services Ltd. Represented by its Authorised Signatory,
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Mr.T.Kathiravan, Having office at: New No.128/4F, Old Door No.53 A 4th Floor, M.N.Office Complex, Greams Road, Chennai – 600 006. .. Applicant Vs.
Mr.Prakash Sakthivel, No.244, 4th Cross Street, J Nagar, Panayur, Chennai – 600 115.
A. No.775 of 2018:
Application praying that this Hon'ble Court be pleased to pass an order of appointment of an Advocate Commissioner to seize and deliver the Construction Equipment JCB 3DX and BACK LOADER bearing Engine No.HOO119886 Chassis No.HAR3DXXTT01497223, to the custody of the Applicant available at the First or Second Respondent's premises or wherever found and with whomsoever it is found and permit the Advocate Commissioner to obtain Police aid and to break open the premises.
A. No.776 of 2018:
Application praying that this Hon'ble Court be pleased to pass an order of appointment of an Advocate Commissioner to seize and deliver the Vehicle CRETA 1.6 CRDI bearing Engine No.D4FCGM018485, Chassis No.MALC281RLGM067568 & Registration No.TN 10 AV 3787 to the custody of the Applicant, available at Respondent's premises or wherever found and with whomsoever it is found and permit the Advocate Commissioner to obtain Police aid and to break open the premises.
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A. No.777 of 2018:
Application praying that this Hon'ble Court be pleased to pass an order of appointment of an Advocate Commissioner to seize and deliver the Vehicle Toyota Innova bearing Engine No.2KDU479629, Chassis No.MBJ11JV4007452229 & Registration No.TN 14 0600 to the custody of the Applicant, available at Respondent's premises or wherever found and with whomsoever it is found and permit the Advocate Commissioner to obtain Police aid and to break open the premises.
These Applications coming on this day before this court for hearing the court made the following order:
Three applications have been filed in terms of section 9 of the Arbitration and Concilliation Act 1996 (the ‘Act’) seeking the appointment of an Advocate Commissioner to seize and deliver vehicles, for the purchase of which the respondents had entered into loan agreements with the applicant in 2016.
2.Brief details of the agreement and the vehicles purchased
thereunder are set out below:
In Application No.775 of 2018, finance facility had been extended under loan agreement No.1855169 dated 29.09.2016 for a sum of Rs.22,00,000/- for the purchase of construction equipment being a JCB 3DX and Back Loader bearing engine No.H0011988 and Chassis No.HAR3DXXTT01497223. The amount was repayable in 46 instalments, the first commencing on 04.12.2016 and the last payable on 04.09.2020. Defaults are stated to have been committed from 03.10.2017 and no payments have been forthcoming thereafter despite demands made by the applicant.
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In Application No.776 of 2018, finance facility was extended under loan agreement No.1339690 dated 09.02.2016 for a sum of Rs.10,57,000/- for the purchase of a vehicle, being CRETA 1.6 CRDI bearing engine No.D4FCGMO18485 and Chassis No.MALC281RLGM067568. The amount was repayable in 36 instalments, the first commencing on 04.03.2016 and the last on 04.02.2019. Defaults are stated to have been committed from 26.10.2017 and no payments have been forthcoming thereafter despite demands made.
In Application No.777 of 2018, finance facility was extended under loan agreement No.1323022 dated 31.01.2016 for a sum of Rs.16,65,000/- for the purchase of a Toyota Innova vehicle bearing engine No.2KDU479629 and Chassis No.MBJ11JV4007452229. The amount was repayable in 36 instalments, the first commencing on 04.03.2016 and the last payable on 04.02.2019. Defaults are stated to have been committed from 20.03.2017 and no payments have been forthcoming despite demands in this regard.
3.The agreements with the parties provides for the resolution of disputes by way of arbitration. Ms.S.Rajeni Ramadas, learned counsel for the applicant emphasizes that the applications are all based on awards passed by the learned Arbitrator in favour of the applicant pursuant to proceedings for arbitration. Awards have been passed on 03.01.2018, 23.12.2017 and 01.07.2017.
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(ii) As confirmed by the learned counsel, the Arbitrators’ disclosure under section 12 of the Act dated 13.01.2018, is the standard form of disclosure filed by the Arbitrator in all matters including the present. The disclosure is identical in all three cases except for the specifics of dates of hearing. For purposes of illustration, the Disclosure filed in proceedings in A.No.775 of 2017 is extracted below and the dates and sequence of events set out in A.No.775 of 2018 are taken as illustrative of the facts in all the applications for the purpose of this order.
'CIRCUMSTANCES DISCLOSING PAST AND PRESENT RELATIONSHIP WITH ANY OF THE PARTIES-
I have no relationship with or interest in any of the parties to the proceeding or to the subject matter in the dispute like financial business, professional or of any other kind which is likely give rise to justifiable doubts as to my independence or impartiality.
So far I have conducted more than 2 arbitration proceedings in which the claimant is a party. Most of them are proceeded exparte or settled amicably.
At present 20 outgoing matters pending before me. However, considering the nature of dispute of simple loan transaction such matters can be disposed-off mainly on the basis of documents, it is my experience that in most of the matters the respondents are either not interested to contest and proceed exparte or without written statement or
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settled amicably, however few matters are contested, but I have never been biased in any of the above cases. As such based on past experience and looking to the nature of work in which I am involved I do not find any difficulty to disposed-off the present proceeding within one year.
I therefore, accept my appointment and direct the respondent to raise its objection, if any as to my appointment within 7 days from the date of receipt of this letter in light of the above circumstances. If respondent does not raise any objection within the time stipulated above it shall be deemed that respondent has accepted my appointment as Sole Arbitrator.
If no objection is raised as to my appointment, the following direction shall observed by the claimant:
a)The claimant to file its statement of claim on the first date of hearing stating their facts; the point at issue and relief and remedy sought.
Parties to appear before me on 28, October, 2017 in the above mentioned matter for hearing between 11.30 am to 1.30 pm at the following address:
Sivanandha Apartments, No.1B/1C, East Park Road,
3rd Floor, Shenoy Nagar, Chennai-600 030 (Tamil Nadu).
The parties are hereby directed to remain present in the proceedings on the above mentioned date, time and place, in person or through their authorize representative or Advocates. On failure to remain present in the proceedings, on the part of either of the parties, the matter shall proceed further, without any reference to the parties. No written communication in lieu of personal appearance would be entertained in any respect.'
(iii) The first instalment in respect of which default has been committed was due on 03.10.2017. The Award of the learned Arbitrator
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is dated 03.01.2018.
(iv) The disclosure filed reveals that even as on the date of the disclosure the learned Arbitrator was engaged in 20 matters relating to the same party.
(v) Identical Disclosures have been addressed to all the respondents before me, one in Bombay and two in Malappuram. The learned Arbitrator states in the Disclosure/Notice of hearing that if there is any objection to his appointment, it shall be stated within one week from date of receipt thereof.
(vi) The matter was posted on 28.10.2018 when the party was to appear either in person or through representative and in the event of default, the defaulting party was to be set exparte. The learned Arbitrator also makes it clear that no written communication in lieu of personal appearance would be entertained.
(vii) The record of proceedings of hearing dated 28.10.17 reveals the absence of the respondent on the said date.
(ix) On 28.10.2017, the learned Arbitrator takes on file the claim statement, though the same was stated to be enclosed by the claimant
even with the Notice of Reference, and serves the same upon the respondent posting the matter on 05.12.2017 for respondents’ written statement.
(x) On 05.12.2017, there is no appearance by the respondent. Though the proceedings state that a notice of hearing has been issued to the
respondents that has been returned unserved, there is neither proof for service of the same available in the records and nor returned cover or AD card with appropriate endorsement.
(xi) The matter was posted to 16.12.2017 for the written statement of
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the respondents. The notice states that continued default of appearance on the next hearing would result in the respondent being set ex parte.
(xii) Since the respondents did not appear thereafter, they were set ex parte and the matter heard in their absence within a period of 60 days from the date of default and award passed.
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11.The 5th schedule to the Act sets out various situations
where the appointment of the arbitrator is liable to be questioned on the ground of impartiality or lack of independence. Clauses 22 and 25 of the 5th schedule state thus:
THE FIFTH SCHEDULE
[See section 12 (1)(b)]
The following grounds give rise to justifiable doubts as to the independence or impartiality of arbitrators: Arbitrator’s relationship with the parties or counsel
22. The arbitrator has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties. …….
24. The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration
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on a related issue involving one of the parties or an affiliate of one of the parties.
12.No doubt the challenge to appointment in terms of the 5th
schedule as extracted above is one to be raised before the Arbitrator in the course of the arbitration proceedings itself. The judgments of the Supreme Court in Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd., (2017 (4) SCC 665) and HRD Corporation (Marcus Oil and Chemical Division) vs. Gail (India) Limited (Formerly Gas Authority of India Ltd.) ( 2017 (9) TMI 56) make this position amply clear.
13. The judgements confirm that a challenge to the appointment of an arbitrator on the ground of plurality/multiplicity of matters involving the same party is liable to be raised by the parties before the Arbitrators under section 13 of the Act and cannot be considered by this Court. Assuming that such challenge is rejected, the proceedings for arbitration would continue and the objecting party is entitled to reiterate the objections in a challenge under section 34 of the Act after passing of an award.
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Explanation 3.—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 draw arbitrators from a small, specialized pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above.
attracted and justifies the frequent appointment of the same
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individuals as Arbitrators by the company. The argument is rejected for the reason that the issue raised in the arbitration is a pure money claim and not a specialized subject requiring the intervention of an expert in a particular field. The very fact that the Arbitrator appointed in the present cases is a learned District Judge would establish that the pre-requisite for appointment is a judicious approach to dispute resolution and nothing more. The exception carved out by Explanation 3 would thus not be available in the present case.
20.In the circumstances as noticed by me above, I believe, prima facie that the manner of conduct of the present proceedings leaves much to be desired.
21.The process of Arbitration calls for a certain sanctity to be maintained in procedure. Two fundamental requirements thereof are the impartiality and independence of the Arbitrator and adherence to the principles of natural justice. In all three cases before me, I am of the categoric view that the procedure as set out in the Act particularly as relating to the appointment of the Arbitrator as well as adherence to the principles of natural justice have not been met.
22.The haste displayed by the applicant in enclosing the claim even with the Reference to Arbitration is unsavory and indicates a certain liberty taken with the Arbitrator that militates against his independence. The Disclosure itself reveals the involvement of the learned Arbitrator in multiple matters involving the same applicant.
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COBO)-0523/February, 2017, the records produced do not contain the acknowledgement of receipt of even the statutory disclosure/notice of hearing upon the respondents. However, the learned Arbitrator states in the record of proceedings dated 29.03.2017 that a copy of ' 1 HN was served on the last known address of the respondent but none for the respondent/s has appeared nor any communication is received. ' I am unable to fathom how this statement could have been recorded in the light of there being no acknowledgement card or even proof of issuance of notice to the respondents.
24.There are also discrepancies in the dates of hearing as recorded in the award and as seen from a verification of the records itself. To me, it appears clear that the approach is mechanical and the procedure adopted is one of rote.
manifold by this Court in several decisions. In the present case, the pleadings reveal that the basis of the application is only the award. No doubt there is an award - however as I have noticed in the earlier paragraphs, prima facie, the procedure followed does not appear to be in consonance with the provisions of the Act or fair play.
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Nagarajan who appear for other Financial Institutions in similar matters were specifically sought on the aspect of the procedure normally followed by the companies and Arbitrators appointed by them in the conduct of Arbitrations.
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in the premises of the company itself and repeated references to the same Arbitrators, to name a few, can thus be avoided, or at least minimized. This will ensure a fair and transparent approach to the process of arbitration.
Dated at Madras this the th day of 2018.
TPY/20.03.2018
From 25th Day of September 2008 the Registry is issuing certified copies of the Orders/Judgments/Decrees in this format.
3 issues framed by the court
Whether a prima facie case is made out for appointment of an Advocate Commissioner to seize assets based solely on an arbitration award.
Whether procedural irregularities in the arbitration proceedings, including lack of impartiality and natural justice, allow the High Court to refuse interim relief.
Whether the uniform practice of appointing the same arbitrator for multiple financial institution disputes vitiates independent arbitration.
Colour shows how this judgement treated each authority
Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd.Applied¶101
Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd., (2017 (4) SCC 665) · Who else cites this
HRD Corporation vs. Gail (India) LimitedApplied¶101
HRD Corporation (Marcus Oil and Chemical Division) vs. Gail (India) Limited (Formerly Gas Authority of India Ltd.) ( <mark>2017 (9) TMI 56)
3 provisions across 1 enactments
M/s. HDB Financial Services Ltd.
M/s G.Raghupathy & Another
Mr S C P Dhanapal
Mr Prakash Sakthivel
Anita Sumanth
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
