Delhi High Court: In a petition filed under Section 34 of the Arbitration & Conciliation Act, 1996 seeking to set aside the arbitral award passed by the sole arbitrator, Chandra Dhari Singh, J., quashed and set aside the impugned arbitral award as there was no effective delivery of the arbitral award to the petitioner, no mandatory notice under Section 21 of the Arbitration Act was given to the Petitioner and the Arbitrator has applied wrong governing law while adjudicating the disputes between the parties.
An Employment Agreement was entered into between the Petitioner and M/s Comprehensive Education and IT Training Institute (‘CEITI’), a Dubai-based entity that was authorized to run Career Launcher test-prep courses in the United Arab Emirates (‘UAE’). M/s CL Educate Ltd. (‘Respondent’) is a company registered under the Companies Act, 1956.
The Petitioner was appointed as the Principal Consultant for its Dubai office, and she was entrusted with the responsibility for enrollment and collection of fees from students for the test-prep courses in Dubai. She was also required to bear the costs in relation to rent, marketing, and sales, course material, salary for faculty, among other things. The money collected was decided to be deposited in the Career Launcher (earlier name of CL Educate) account.
However, the Petitioner received a legal notice seeking payment of various amounts on account of fees allegedly collected by the Petitioner to which the petitioner replied denying all allegations. Pursuant to this, the arbitration clause was invoked, and a sole arbitrator was appointed who proceeded ex-parte and passed the impugned arbitral award in favour of the respondent. Aggrieved by this, the present petition was filed.
I. Whether the present petition under Section 34 of the Arbitration Act is barred by limitation?
The Court noted that the Arbitration Act in Para 4(v) of the Statement of Objects and Reasons states that one of the most important objectives is the need “to minimize the supervisory role of courts in the arbitral process”. Section 5 of the Arbitration Act is an injunction to the Courts and clearly defines the scope of judicial intervention in an Arbitration proceeding.
Placing reliance on Mahindra & Mahindra Financial Services Ltd. v. Maheshbhai Tinabhai Rathod, (2022) 4 SCC 162, the Court clarified that it does not have the power to condone any delay which exceeds the statutory time limit prescribed under Section 34(3) of the Arbitration Act.
(i) Whether the delivery of the impugned arbitral award to one Mr. Shrey Baxi can be taken as a receipt of the award to the Petitioner in view of the provisions of the Arbitration Act?
Placing reliance on State of Maharashtra v. ARK Builders (P) Ltd., (2011) 4 SCC 616, the Court observed that the Employment Agreement was executed by Ms. Monika Oli individually and not in the capacity of her being a shareholder of Knowledge Planet LLC, thus the delivery to Mr. Baxi who is just an employee of the company does not constitute as delivery to the Petitioner as envisaged under Section 34(3) read with Section 31(5) of the Arbitration Act.
The Court summarized the principles qua delivery of arbitral award as follows:
a) The word ‘party’ in Section 34(3) means party to the arbitration proceedings and does not include an agent of the party as well.
b) The delivery to be effective and in consonance with the legislative scheme of Arbitration Act must be made to a person who has direct knowledge of the arbitral proceedings and who would be the best person to understand and appreciate the arbitral award being connected with the dispute at hand.
Therefore, delivery to the employee of an entity in which the Petitioner is a shareholder, but the arbitration dispute did not pertain to that entity, would not constitute as a proper delivery in terms of the Arbitration Act.
(ii) Whether the various correspondences between the Petitioner, Respondent and the Arbitrator constitute as a valid notice under Section 21 of the Arbitration Act?
This Court has carefully perused the legal notice and is unable to conclude that the ‘Legal Demand cum Cease/Desist Notice‘ served on the petitioner can qualify as a notice invoking arbitration under Section 21 of the Act for primarily two reasons:
a) This letter merely states that the Respondent has a right to initiate Arbitration proceedings in future, but does not intend to do so at present;
b) This letter does not name any person as an Arbitrator, nor the fact that the person is being appointed as an Arbitrator in terms of the Employment Agreement has been mentioned.
On perusing other documents on record and placing reliance on Shriram Transport Finance Co. Ltd. v. Shri Narendra Singh, (2022) SCC OnLine Del 3412, the Court concluded that a proper notice under Section 21 of the Arbitration Act was not served upon the Petitioner.
III. Whether the impugned arbitral award is liable to be set aside on the ground that the Arbitrator has wrongly applied the Indian law as the substantive/governing law of the Contract?
Placing reliance on Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb, [2020] UKSC 38, the Court recorded that in international commercial arbitrations, if the parties opt to have the arbitration’s seat in a specific nation, that nation’s rules governing arbitration proceedings will take effect and its courts will have supervisory jurisdiction over the arbitration.
Thus, the Arbitrator has grossly erred in applying Indian laws to govern and adjudicate upon the disputes arising between the parties even when there was a specific agreement to the effect that the Employment Agreement will be governed by the UAE Federal Labour Law.
On the issue of what constitutes a violation of the fundamental policy of Indian Law, the Court relied on Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49 to conclude that first, the arbitrator must have taken a judicial approach; secondly, the principles of natural justice must have adhered; thirdly, the decision must not be perverse.
Thus, the Court held
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There was no effective delivery of the arbitral award to the Petitioner and the present case is fully covered by the decisions of the Supreme Court in Union of India v. Tecco Trichy Engineers & Contractors, (2005) 4 SCC 239, Benarsi Krishna Committee v. Karmyogi Shelters Pvt. Ltd., (2012) 9 SCC 496, and ARK Builders (supra).
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The present application is within the purview of limitation as envisaged under Section 34(3) of the Arbitration Act.
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No mandatory notice under Section 21 of the Arbitration Act was given to the Petitioner, in view of the dictum of the Division Bench of this Court in Shriram Transport (supra).
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The Arbitrator has applied the wrong governing law while adjudicating the disputes between the parties. The entire dispute was to be adjudicated by the substantive law of the Contract which was the UAE Federal Labour Law in view of the dictum of the Supreme Court of the United Kingdom in Enka Insaat (supra).
[Monika Oli v. CL Educate Limited, 2023 SCC OnLine Del 177, decided on 18-01-2023]
Judgment by: Justice Chandra Dhari Singh
Advocates who appeared in this case :
Mr.Jayant Mehta, Senior Advocate with Mr. Karan Lahiri, Mr.Akshat Gupta, Mr.Pranav Jain, Ms.Sakshi Tikmany, Ms.Sayani Dey and Mr.Raghav Bhatia, Advocates, for the Petitioner;
Mr.Dhruv Mehta, Senior Advocate with Mr.Rajat Arora, Ms.Mariya Shahab and Mr.Shyam Agarwal, Advocates, for the Respondent.
*Arunima Bose, Editorial Assistant has reported this brief.
