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2019 Supreme(Telangana) 188
IN THE HIGH COURT OF FOR THE STATE OF TELANGANA
M.S. RAMACHANDRA RAO, J.
V. Balakrishnan & Another – Appellant
Versus
Capital First Limited – Respondent
Arbitration Application No. 115 of 2015
Decided on : 14-08-2019
Advocate Appeared:
For the Petitioners:Srikanth Hari Haran, Advocate.
For the Respondent:S. Sudarshan, Advocate.
Headnote:
Arbitration and Conciliation Act, 1996 – Section 11(5) and (6) – Seeking appointment of an Arbitrator to resolve disputes between applicants and respondent in respect of loan – Whether High Court can entertain Application under Section 11(5) and (6) of Act or Arbitration Application is maintainable when arbitration clause has been invoked by respondent by appointing Arbitrator – Held, Respondent-1 not only not disclosed conflicting interests that he had in matter but had gone step further by betraying trust reposed on him by complainant – Clearly prove guilt of Respondent-1 acted in manner unbecoming of lawyer, who was bound by ethical conduct and failed to protect interest of his client – In the instant case too, duty cast on arbitrator to disclose that he was member of Law Firm which represented respondent in very same case against applicants by issuing legal notice – Even when applicants had not known about it, such duty is cast on him not only to disclose it but also to refuse to be an arbitrator to adjudicate the dispute between the applicants and respondent – Thus justifiable doubts about his independence and impartiality because he ought to have disclosed conflict of interest against applicants to them and he failed to do so – Appointment of sole arbitrator by respondent is ex facie invalid and such fait accompli by respondent not debar jurisdiction of this Court under Section 11(6) of Act – In the instant case it is warranted also because respondent, who ought to appointed an independent and impartial arbitrator, in exercise of power conferred on it under Clause 10.7 (h) of loan agreement, not only did not do so, but it is blatantly defending such ex facie illegal appointment, though it is hit by Section 12(3)(a) of Act – Application allowed (Paras: 28,53, 57, 58 & 60)
Facts of the case:
Seeking appointment of an Arbitrator to resolve disputes between applicants and respondent in respect of loan – Whether High Court can entertain Application under Section 11(5) and (6) of Act or Arbitration Application is maintainable when arbitration clause has been invoked by respondent by appointing Arbitrator.
Findings of the court:
In the present case,Respondent-1 not only not disclosed conflicting interests that he had in matter but had gone step further by betraying trust reposed on him by complainant – Facts which are analysed clearly prove guilt of Respondent-1 acted in manner unbecoming of lawyer, who was bound by ethical conduct and failed to protect interest of his client – In the instant case too, duty cast on arbitrator to disclose that he was member of Law Firm which represented respondent in very same case against applicants by issuing legal notice – Even when applicants had not known about it, such duty is cast on him not only to disclose it but also to refuse to be an arbitrator to adjudicate the dispute between the applicants and respondent – Thus justifiable doubts about his independence and impartiality because he ought to have disclosed conflict of interest against applicants to them and he failed to do so – Appointment of sole arbitrator by respondent is ex facie invalid and such fait accompli by respondent not debar jurisdiction of this Court under Section 11(6) of Act – In the instant case it is warranted also because respondent, who ought to appointed an independent and impartial arbitrator, in exercise of power conferred on it under Clause 10.7 (h) of loan agreement, not only did not do so, but it is blatantly defending such ex facie illegal appointment, though it is hit by Section 12(3)(a) of Act – Consequently appointment by respondent arbitrator to adjudicate disputes between applicants and respondent arising out of Loan Agreement relating to Loan Account set aside
Result: Application is allowed
JUDGMENT :
1. Heard Sri Srikanth Hariharan, learned counsel for applicants and Sri S.Sudarshan, learned counsel for respondent.
2. This Arbitration Application is filed under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996 (for short “the Act”) seeking appointment of an Arbitrator to resolve the disputes between the applicants and the respondent in respect of loan Account bearing No. HE387555.
The case of the applicants
3. The applicants are spouses residing at Hyderabad. They contend that they had approached M/s.Citi Financial Consumer Finance Limited (for short “Citi Financial”), Nallakunta Branch, Hyderabad seeking a housing loan; that after discussions between themselves and the representative of Citi Financial at Hyderabad, a loan of Rs.32 lakhs was sanctioned to them for construction of first floor on the residential house property in the name of the 2nd applicant at Secunderabad; but it is their contention that copy of the Home Loan Agreement was not handed over to them by the Citi Financial though their signatures were taken on blank sheets of paper at the latter’s Hyderabad office.
4. They alleged that in 2008, Citi Financial offered to increase the loan amount to Rs.60 lakhs with corresponding increase in the E.M.I. promising that the tenure of the loan would not change, that apportionment of E.M.Is. paid towards the principal amount and interest shall remain constant and shall not be subjected to change. They contend that on the basis of the said understanding, they executed an Agreement dt.30-03-2008 and after that, the loan was sanctioned.
5. According to the applicants, there was no complaint from Citi Financial for 3 years thereafter, but suddenly on 07-04-2011, they were informed by one M/s.Future Capital Holdings Limited that the applicants’ loan account was assigned by Citi Financial to it.
6. They contended that M/s.Future Capital Holdings Limited was taken over by the respondent Company; that the Deed of Assignment was never supplied to them; and their consent was also not taken for such assignment.
7. They contended that unilaterally and arbitrarily the respondent Company changed the rate of interest from 11.98% to 12.48%, and when they approached the office of the respondent at Hyderabad, they stated that consumer queries or problems should be pursued only with the Mumbai Office of the respondent. They contended that in 2012 also when such unilateral change of interest was made, they had protested through a letter dt.03-11-2012.
8. According to the applicants, they asked the respondent to furnish copy of statement of their loan account bearing No.HE387555 and when the same was given to them, they noted that even the tenure of the loan which was to expire on 05-04-2023 was changed to 05-06-2025; that the respondent had even reduced the amounts adjusted towards the principal amount from the amount paid as EMIs; and thus violated the terms and conditions agreed between the parties. They contended that they protested to the same through their letter dt.21-11-2012.
9. They also alleged that they had been regularly paying the EMIs under protest and had also addressed letters on 06-02-2013, 17-05-2013, 28-08-2013 to the respondent; due to certain financial difficulties they could not make payment in time in December, 2013; respondent then issued a letter dt.03-01-2014 to immediately pay the same; and in spite of protest of the applicants, they did not withdraw the same in spite of letter dt.11-01-2014 sent by the applicants.
10. They contended that they were informed by letter dt.03-11-2014 that there was a default in payment of loan installment for November, 2014; that the respondent also gave a legal notice dt.02-06-2015 under Section 25 of the Payment of Settlement of Systems Act, 2007; and the respondent on 02-07-2015 even recalled the entire loan amount.
11. Later through letter dt.06-07-2015, the respondent appointed one Uma Kanth Sharma, New Delhi as an Arbitrator invoking clause-10.7(h) of the lo
