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2022 Supreme(Mad) 2769
IN THE HIGH COURT OF JUDICATURE AT MADRAS
P.T. ASHA, J.
M/s Daimler India Commercial Vehicles Pvt. Ltd., Represented by its Authorised Signatory, Kancheepuram - Appellant
Versus
M/s. Sea land Infrastructure Pvt. Ltd, Rajkot & Another - Respondent
CMA. No. 1085 of 2022 & C.M.P. No. 7636 of 2022
Decided On : 08-08-2022
For the Petitioner:K. Harishankar, Advocate. For the Respondents:R1, Tirth Nayak, R2, S. Namasivayam, Advocates.
Procedural fairness and the right to be heard are fundamental principles in arbitration proceedings, and impleading parties without notice violates these principles.
Headnote:
Arbitration Agreement - Impleadment - Arbitration and Conciliation Act, 1996, Section 37(2)(b) - Working Capital Facility Agreement, Section 9 - Dealership Agreement, Order 1 Rule 10 of the Code of Civil Procedure - 2022 SCC Online Madras 796 - Abhibus Services India Pvt Ltd and Others Vs. Pallvan Transport Consultancies Services Ltd. Rep. by its Managing Director and Another - 2020 SCC Online Madras 138 : AIR 2021 (NOC 206) 72 - Padam Chand Kothari Vs. Shriram Transport Finance Co. Ltd. and Another - (2013) 1 SCC 641 - Chloro Controls (I) P. Ltd. Vs. Severn Trent Water Purification Inc. an Ors.
Fact of the Case:
The appellant, a third party to an Arbitration Agreement, challenged the order passed by the Arbitral Tribunal impleading the appellant as a party to the Arbitral proceedings initiated between the respondents. The 1st respondent had availed Financial Facilities from the 2nd respondent and had entered into a Working Capital Facility Agreement. The 1st respondent sought to implead the appellant as a party to the proceedings based on a Dealership Agreement with the appellant.
Finding of the Court:
The Court found that the appellants had been impleaded without notice and had not been heard before the impugned orders were passed. The Court set aside the impugned order, allowed the appeal, and remitted the matter back to the Arbitral Tribunal for considering the implead application afresh after receiving the counter of the proposed parties and after hearing all parties concerned.
Issues: Procedural irregularity in impleading the appellant as a party to the Arbitral proceedings, independence and connection of the agreements, maintainability of the application under the provisions of Order 1 Rule 10 of the CPC.
Ratio Decidendi: The Court's decision was influenced by the procedural irregularity in impleading the appellant without notice and the need for the appellant to be heard before the impugned orders were passed.
Final Decision: The Court set aside the impugned order, allowed the appeal, and remitted the matter back to the Arbitral Tribunal for considering the implead application afresh after receiving the counter of the proposed parties and after hearing all parties concerned.
JUDGMENT
(Prayer: Appeal filed under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996 to set aside the impugned order dated 01.04.2022 passed by the Hon'ble Sole Arbitrator in Arbitraion Case No.2 of 2021 on the file of the Hon'ble Sole Arbitrator.)
1. The third party to an Arbitration Agreement is the appellant before this Court challenging the order passed by the Arbitral Tribunal impleading the appellant herein as a party to the Arbitral proceedings initiated between the respondents herein.
2. Since there is a procedural irregularity, I do not intend to traverse into the intricate details of the dispute among the parties but I am just touching upon the facts which would be germane to disposing of this petition.
3. The 1st respondent herein had availed Financial Facilities from the 2nd respondent and had entered into a Working Capital Facility Agreement dated 27.07.2020 with the 2nd respondent. As per the terms of the said agreement any dispute between the parties under or in connection with the agreement was to be referred to the arbitration consisting of a sole Arbitrator to be appointed by the lender. It appears that the 1st respondent had defaulted in the payment of the dues which prompted the 2nd respondent to issue a loan recall notice dated 26.02.2021 calling upon the 1st respondent to repay the sum of Rs.31,49,78,942.65 [Rupees Thirty-One Crores Forty Nine Lakhs Seventy Eight Thousand Nine Hundred Forty Two and paisa Sixty Five Only] which was the outstanding as on 17.02.2021. The respondent had demanded that the amount to be paid within a period of 7 days from the date of receipt of the notice. However, there was no response to the said notice.
4. The 2nd respondent had therefore, approached this Court by filing an application under Section 9 of the Arbitration and Conciliation Act (hereinafter referred to as the Act), for an injunction restraining the respondent from alienating their properties and shares in various companies. On 02.08.2021 an interim injunction was granted as prayed for. The 2nd respondent thereafter filed O.P.No.60 of 2021 under Section 11 of the Act for appointing an Arbitrator. The Arbitrator was also so appointed by orders of this Court. Thereafter, the 2nd respondent had filed their claim petition for the following reliefs:-
"1. Directing the respondents 1, 2 and 4 jointly and severalty to pay to the claimant a sum of Rs.33,44,57,682.23/- [ Rupees Thirty Three Crore Forty Four Lakh(s) Fifty Seven Thousand Six Hundred Eighty Two and Paise Twenty Three Only} as on 17.09.2021 together with interest of 24% p.a. till the date of realization/payment thereof.
2. Directing the respondents 1, 2 & 4 jointly and severalty to pay the cost of the proceeding.
3. Grant such further or other relief as this Hon'ble Tribunal may deem fit and proper in the circumstances of the case and thus render justice."
5. The 1st respondent who had entered appearance had filed their written statement and their counter claim dated 20.12.2021 in which they had claimed a sum of Rs.13,50,00,000/- [Rupee Thirteen Crores, Firty Lakhs Only] from the 2nd respondent. Along with their counter claim, the 1st respondent herein had taken out an application invoking the provisions of Order 1 Rule 10 of the Code of Civil Procedure to implead the appellant herein as a party to the proceedings. In the application filed in support of the said petition, the 1st respondent would submit that they had entered into a Dealership Agreement with the appellant initially in the year 2011-2012 which was being periodically renewed and the last of such renewal was in November 2018. Pursuant to the agreement the 1st respondent herein was appointed as an Authorised Dealer for selling the commercial vehicles of M/s.Daimler India in various Districts in the State of Gujarat. In view of the 1st respondent entering into a Dealership Agreement with the appellant, the claimant/the 2nd respondent which is a sister concern of the appellant had pr
