Manohar Lal & Co vs Axis Bank Limited

Moushumi Bhattacharya, J. :

The instant applications under Section 34 of The Arbitration and Conciliation Act, 1996 (the Act) are for setting aside of two Awards both dated 17th

December 2016 made and published by a sole arbitrator in arbitration proceedings between the petitioner (the respondent before the learned

arbitrator) and Axis Bank (the respondent herein and the claimant before the learned arbitrator).

The limited issue to be decided relates to the preliminary objection taken by the respondent Bank that the present petitions are not maintainable and

should be dismissed under Section 34 (3) read with the proviso to the said section under the 1996 Act. It is the contention of the respondent Bank that

the applications have been filed outside the time mandated under Section 34 (3) of the Act and that the petitioner has not taken leave of this Court for

the further period of 30 days which is stated in the proviso to Clause 3 of Section 34 of the Act. By an order dated 24th August 2017, the point of

limitation was kept open to be argued after exchange of affidavits.

It has been submitted by Counsel appearing for the parties that identical facts are involved in the two applications pertaining to two loan and

hypothecation Agreements dated 11th May 2015 and 5th August 2015 executed between the parties and culminating in two Awards delivered by the

sole Arbitrator. The two agreements were for loans taken from the respondent Bank for delivery of two Jaguar Cars against a schedule of payments

to be made by the petitioner to the respondent Bank.

The respondent’s case would appear from a brief statement of the relevant facts:

• By a letter dated 21st June 2016, the learned arbitrator informed the respondent Bank as well as the petitioner and its partners that he had been

appointed as the sole arbitrator in the dispute between the parties and under the agreement dated 5th August 2015 which contained an arbitration

clause.

• By the said letter, the learned arbitrator gave a schedule by which the parties were directed to file their respective pleadings and were also

informed that the first sitting would be held on 22nd July 2016 at the time and venue specified in the said letter.

• The arbitration was thereafter held on various dates which were all attended by the respondent Bank (claimant in the arbitration).

• The Bank also filed its statement of claim and adduced oral evidence to prove the claims.

• The petitioner herein did not appear on any of the dates fixed by the learned arbitrator.

• The Awards record that notices of the sittings had been effected on the parties, despite which the petitioner did not appear. The arbitrator hence

had no other alternative but to proceed with the arbitration in terms of the 1996 Act.

• The arbitration was concluded on 30th November 2016 and the Awards were delivered on 17th December 2016.

• The arbitral Awards were despatched by the learned arbitrator to the respective parties by registered post with acknowledgement due.

• The postal receipts and the acknowledgement due card shows that the petitioner had been served with the arbitral Award on 23rd December

2016.

• This would be evident from page 78 of the affidavit-in-opposition to AP no. 667 of 2017 which shows that one Usha Goenka had received the

Award and signed on behalf of Biswanath Agarwala, the intended addressee.

• The stamp of the acknowledgement card reflects the dated 23rd December 2016.

• Biswanath Agarwala is admittedly a partner of the petitioner and has been described as such in both the applications for setting aside of the

Awards.

Since the statutory period of three months elapsed on 22nd March 2017 from the service/delivery of the Award, the respondent applied for

enforcement of the arbitral Award by filing EC no.127 of 2017 in this Court. The execution application was taken up for hearing on 11th May 2017

and on the returnable date, it was submitted on behalf of the petitioner that the Award had been received on behalf of Biswanath Agarwala by one

Usha Goenka who is the wife of Biswanath Agarwala. On the basis of the above submission, an order was passed by Hon’ble Justice Soumen

Sen on 16th May 2017, by which inter-alia the execution application was served upon the petitioner. In terms of the aforesaid order, an advertisement

was published for sale of the asset. On 11th July 2017, the respondent received a letter from the advocate of the petitioner requesting for copies of the

execution application. The petitioner appeared through advocates before the executing Court and submitted that the Award could not be enforced

against Biswanath Agarwala since Usha Goenka wife of Biswanath Agarwala, who had signed in the acknowledgement due card, had not been

authorised by Biswanath Agarwala to receive the arbitral Award on his behalf.

By an order dated 18th July 2017, the executing Court was pleased to hold that the respondent could not demonstrate service of the Award upon the

petitioner herein but service upon Biswanath Agarwala (the judgment debtor no.2 before the executing Court) had been duly effected. The executing

Court also observed that the address of Biswanath Agarwala (where the Award had been sent) was the same address mentioned in the loan cum

hypothecation agreement executed between the parties. The Court further observed that the submission that Usha Goenka was not authorised to

accept any communication on behalf of Biswanath Agarwala was only to defeat the execution proceeding. Biswanath Agarwala was hence directed

to file an affidavit of assets under the provisions of the Code of Civil Procedure. The executing Court further directed that the name of the petitioner

(being the judgment debtor No.1) shall be deleted from the cause title since the Award had not been served on the petitioner.

The application being AP No. 667 of 2017 for setting aside of the arbitral Award was thereafter filed by the petitioner on 11th August 2017. Mr.

Swatarup Banerjee, counsel appearing for the respondent Bank submits that the application filed for assailing the Award should be dismissed.

Relying upon the sequence of events as stated above, he submits that the date for filing of the instant application expired on 22nd March 2017 (on the

basis of the award having been received by Biswanath Agarwala on 23rd December 2016) and that the petitioner would have been entitled to a

further period of 30 days from 22nd March 2017 till 21st April 2017 provided an explanation for condonation of delay for filing the present application

had been made before this Court. Admittedly, no such application had been filed for seeking leave that the delay be condoned upon sufficient cause.

Counsel relies on Section 24 of the Indian Partnership Act, 1932 which is set out below:

“24. Effect of notice to acting partner- Notice to a partner, who habitually acts in the business of the firm of any matter relating to the affairs of the

firm operates as notice to the firm, except in the case of a fraud on the firm committed by or with the consent of that partner.â€​

It is submitted that on a reading of the above section it is evident that receiving of a notice addressed to the partnership firm by an active partner who

is involved in the day to day business of the partnership, constitutes an acceptance and acknowledgement of such notice by the firm. Admittedly, the

Award had been received on 23rd December 2016 by Usha Goenka , on behalf of the active partner of the firm (Biswanath Agarwala). The period of

limitation under Section 34 of the Act would hence start from that date. He also submits that since the acknowledgement card with respect to service

of the Award to the petitioner firm had been subsequently discovered, the respondent Award holder has filed an application for recalling the order

dated 18th July 2017 and that such application is pending before the executing Court.

Ms. Nilanjana Adhya, counsel appearing for the petitioner submits that the signed copy of the arbitral Award was never delivered to the petitioner and

it was only from an annexure to the execution application that the petitioner came to know of the Award dated 17th December 2016. According to

Counsel, the Award was received by the petitioner only on 17th July 2017 and that the period of limitation would therefore run from that date. The

petitions challenging the Award were filed on 11th August 2017 and are therefore covered under Clause 3 of Section 34 of the Act. Counsel relies on

the order passed by the executing Court dated 18th July 2017 by which the name of the petitioner (judgment debtor no.1) was directed to be deleted

and submits that the said order was passed upon the executing Court being satisfied that the respondent Award holder could not demonstrate service

of the Award to the petitioner firm. Counsel further submits that the acknowledgement due card showing service upon Biswanath Agarwala, partner

of the petitioner, contains an address which is different to the address recorded in the Schedule to the Loan Cum Hypothecation Agreement. She

relies on Section 31 (5) of the 1996 Act which requires a signed copy of the arbitral Award to be delivered to each party to the arbitration proceeding.

I have considered the submissions of Counsel and the materials on record with regard to service of the arbitral Award on the petitioner herein. It is not

in dispute that the petitioner is a partnership firm constituted under the provisions of the Indian Partnership Act, 1932 and that Biswanath Agarwala is

a partner of the petitioner. The petitioner award-debtor proceeds on the basis that the present petition under section 34 should be allowed since the

starting point for the purposes of limitation is 17th July 2017, when the petitioner was served with the Award as part of the execution petition. The

aforesaid presumes that the Award was not delivered to the petitioner firm as required under section 31(5) of the Act any time before July 2017. To

assess the truth of this contention of the petitioner, the factual position should be examined. First, the petitioner firm has not disputed in its pleadings or

otherwise that Biswanath Agarwala has ceased to be a partner of the petitioner. On the contrary, both the applications under Section 34 start with the

pleading that Biswanath Agarwala is a partner of the petitioner. In the Loan cum Hypothecation agreement, Biswanath Agarwala has signed both as

partner of the firm as well as a co-borrower of the asset in queston; his initials in fact appear on every other page of the agreement.

Second, it is evident from the endorsement of Usha Goenka on the acknowledgement form that the Award was delivered to the intended addressee,

namely Biswanath Agarwala, on 23 December 2016. The signature of Usha Goenka on the space of the “signature of addressee†on the

acknowledgement of the parcel is important for two reasons; it is nobody’s case that Usha Goenka was not related to Biswanath Agarwala; on

the contrary, counsel appearing for the petitioner in the execution proceedings had submitted that Usha Goenka was the wife of Biswanath Agarwala.

Moreover, the plea that Usha Goenka was not authorised to receive the Award on behalf of her husband Biswanath Agarwala has been settled by the

executing Court in the order dated 18th July 2017 by which service upon Biswanath Agarwala (judgment debtor No.2 before the executing Court)

was taken to have been satisfactorily demonstrated by the respondent. The submission that Usha Goenka was not authorised to accept any

communication on behalf of Biswanath Agarwala was dismissed as a ploy to defeat the execution proceeding.

The other issue which has been raised by Counsel appearing for the petitioner is that an incorrect address had been put on the postal envelope

containing the Award since the said address does not match with the address recorded in the Schedule to the Loan cum Hypothecation Agreement.

Reliance has been placed on Clauses 18.9 and 18.10 of the said agreement on this issue. In the Loan cum Hypothecation Agreement dated 5th

August 2015 and the Schedule thereto, the address of Biswanath Agarwala has been mentioned as “19A Alipur Road, 3rd Floor, Flat No.3B,

Rajkiran Apartment, Kol-27â€. Incidentally, this is the address mentioned on the postal acknowledgment, a reproduction of which has been annexed at

page 78 of the affidavit-in-opposition filed on behalf of the respondent in AP No.667 of 2017 and which was received by Usha Goenka , wife of

Biswanath Agarwala on 23rd December 2016. The same address had also been put in the letter dated 21st June 2016 circulated by the learned

arbitrator to the concerned parties intimating them of the first hearing scheduled for 22nd July 2016. Clauses 18.9 and 18.10 of the agreement relied

upon by the petitioner do not mention any address of any of the parties to the agreement and in fact states that the addresses of the parties shall be as

mentioned under the Schedule. As stated above, the Schedule of the agreement mentions the same address of Biswanath Agarwala as that of the

acknowledgement card showing that the Award had been received by Usha Goenka , wife of Biswanath Agarwala.

The next issue to be considered is whether receipt of the Award by Biswanath Agarwala amounts to receipt of the Award by the petitioner

partnership firm. The dispute having arisen from the Loan cum Hypothecation Agreement dated 5th August 2015, it is necessary to look into the said

agreement to ascertain the manner in which the borrower (petitioner herein) represented itself. The Loan cum Hypothecation Agreement contains the

signature of Biswanath Agarwala on several pages as a partner of Manohar Lal and Co. (the petitioner) as well as a co-borrower. Biswanath

Agarwala has also put his signature on the last page of the agreement as partner and co-partner. The Schedule to the agreement also bears the name

of Biswanath Agarwala as a coborrower where he has also signed as partner of the petitioner. The disbursement request form from the petitoner to

the respondent Bank with regard to the loan facilities extended also bears the signature of Biswanath Agarwala as partner of the petitioner. The

vehicle surrender letter addressed to the respondent Bank also contains the signature of Biswanath Agarwala as partner of the petitioner. The priority

sector advance declaration by customer for availing car loan has been signed by Biswanath Agarwala as partner of the petitioner. There is no material

on record from which it would appear that Biswanath Agarwala has ceased to be a partner of the petitioner or does not have the authority to act as a

partner of the petitioner. Under Section 24 of The Indian Partnership Act, 1932, notice to Biswanath Agarwala, who has habitually acted in relation to

the affairs of the petitioner firm, would operate as a notice to the petitioner. If this be the case, the document at page-78 of the affidavit-in-opposition

of the respondent in A.P. No. 667 of 2017, being the acknowledgement form showing that Usha Goenka had received the award on behalf of her

husband Biswanath Agarwala, would constitute effective service of the award on the Biswanath Agarwala and hence on the petitioner firm. Besides,

the service on the petitioner through Biswanath Agarwala constitutes effective service under Section 3 of the 1996 Act and in relation to service of

Summons under Order XXX Rule 5 read with Rule 3 of the Code of Civil Procedure.

It follows that since the Award was received by Biswanath Agarwala (and hence the petitioner) on 23rd December, 2016, the period of limitation

under Section 34(3) of the Act would run from this date 22nd March 2017 would therefore be the cut-off date within which the petitioner would have

to make the application for setting aside the Award. The petitioner could have had a further period of 30 days from 22nd March 2017 till 21st April

2017 had the delay in filing the application been explained by the petitioner and condoned by the Court. Since none of the aforesaid has admittedly

been done and the application has been filed on 11th August 2017, under the amended provisions of the 1996 Act, both the arbitration petitions are

outside the period mandated under the Act and are liable to be dismissed.

Under the Arbitration and Conciliation (Amendment) Act, 2015, the mandate of the proviso to Section 34(3) is clear; a Court can only entertain an

application for setting aside an Award after three months from the date on which the party has received the Award, provided an application has been

made for condoning the delay (for the three months having elapsed) and upon satisfaction of the Court that there was sufficient cause for such delay.

If this application succeeds, a second window of thirty days is provided for lodging the challenge to the Award, “but not thereafterâ€. In the

present case, the first window for making the challenge lapsed on 22nd March 2017 and which became the only window in the absence of an

application for condonation of delay being filed by the petitioner. The present applications were filed after almost five months beyond the period

prescribed under Section 34(3) of the Act.

In view of the above findings, the point of maintainability with regard to AP Nos. 667 and 668 of 2017 succeeds and both Arbitration petitions being

AP 667 of 2017 and AP 668 of 2017 stand accordingly stand dismissed. The applications being G.A. No. 2725 of 2017 and G.A. No. 2727 of 2017 are

disposed of accordingly. There shall be no order as to costs.

Urgent Photostat certified copy of this Judgment, if applied for, be supplied to the parties upon compliance with all requisite formalities.