Delivery Of Arbitration Award To Employee/ Agent Of Party, Not A Valid Delivery Under Arbitration Act: Delhi High Court

The Court further held that, delivery of the arbitral award to the employee of an entity in which the award debtor is a shareholder but the arbitral dispute does not pertain to that entity, would not constitute as proper delivery in terms of the A&C Act.

Section 34 (3) of the A&C Act provides that an application for setting aside an award must be made within three months from the date on which the party making the application had received the arbitral award.

The petitioner, Monika Oli, and the respondent, M/s CL Educate Ltd., entered into an Employment Agreement. After certain disputes arose between the parties under the Agreement, the respondent invoked the arbitration clause and an ex-parte arbitral award was passed against the petitioner. Challenging the arbitral award, the petitioner filed a petition under Section 34 of the A&C Act before the Delhi High Court.

The petitioner, Monika Oli, submitted before the High Court that the arbitral award was illegal as she never received the notice under Section 21 of the A&C Act. She argued that issuance of notice under Section 21 is mandatory and its non-issuance renders the entire arbitral proceedings as non-est and void ab initio.

The petitioner added that she never received any communication from the Arbitrator indicating his appointment and consent to act as an Arbitrator, or any notice directing her to appear in the arbitral proceedings.

The petitioner contended that she gained knowledge of the Arbitral Award in 2022 when she received a notice from a Dubai Court in the execution proceedings filed by the respondent. She argued that receipt of the arbitral award which was passed in 2015, by an employee of the Company in which the petitioner is a minority shareholder, cannot be construed as delivery to the petitioner.

The respondent, M/s. CL Educate, argued that the petition was barred by limitation. It further argued that notice under Section 21 was duly issued to the petitioner by way of a legal notice.

The Court noted that Section 31 (5) of the A&C Act requires that a signed copy of the arbitral award shall be delivered to each party. The term “party” is defined in Section 2 (h) as meaning “a party to an arbitration agreement”. It noted that as per the decision of the Apex Court in Union of India v. Tecco Trichy Engineers & Contractors, (2005) 4 SCC 239, the term “party” has to be read as defined in Section 2(h), unless the context otherwise requires.

Further, the Court took note that delivery of arbitral award on an agent or advocate of a party would not constitute as proper delivery in terms of Sections 31(5) and 34(3), in view of the Supreme Court’s decision in Benarsi Krishna Committee & Ors. v. Karmyogi Shelters Pvt Ltd., (2012) 9 SCC 496.

Also, the Court reckoned that the period of limitation will commence only from the date on which the order/award was received by the relevant party in the manner prescribed by the law. (State of Maharashtra v. ARK Builders (P) Ltd., (2011) 4 SCC 616)

The High Court thus concluded that the word ‘party’ in Section 34(3) means party to the arbitral proceedings and does not include an agent of the party as well. The bench added: “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”.

Observing that the petitioner was involved in the dispute in an individual capacity and not in relation to her position as a minority shareholder of her Company, the Court concluded that no valid delivery of arbitral award was affected in the present case.

“Nothing has been brought in record to portray that Mr. Baxi had accepted the arbitral award on behalf of the Petitioner. 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”, the Court said.

The bench added: “This Court is conscious that it has been close to 8 years since the award has been passed and a pedantic approach ought not to be taken, however, justice cannot be thwarted only because substantial time has elapsed when there is nothing on record to substantiate compliance with the mandatory provisions of Section 34(3) read with Section 31(5) of the Arbitration Act particularly, in view of the decision in Benarsi Krishna Committee (supra).”

The Court took note that the Division Bench of the Delhi High Court in Shriram Transport Finance Co. Ltd. v. Shri Narendra Singh, (2022) SCC OnLine Del 3412, has recently ruled that compliance with Section 21 of A&C Act is mandatory in nature and not a matter of choice. Further, if no notice under Section 21 is received by the concerned party, there can be no commencement of arbitral proceedings at all, the Division Bench had held.

Referring to the ‘Legal Demand cum Cease/Desist Notice’ issued by the respondent, the High Court concluded that the said Notice/Letter merely stated that the respondent has a right to initiate arbitral proceedings in future; also, the said Notice did not name any person as an Arbitrator. Thus, the said Legal Notice cannot qualify as a notice invoking arbitration under Section 21 of the A&C Act, the Court said.

“Accordingly, this Court is satisfied that a proper notice under Section 21 of the Arbitration Act was not served upon the Petitioner”, the Court said.

The bench further conceded that the Arbitrator had grossly erred in applying Indian laws to adjudicate the disputes between the parties despite a specific agreement to the effect that the contract would be governed by the UAE Federal Labour Law, under which employment and labour disputes are non-arbitrable.

Since there was no effective delivery of arbitral award to the petitioner, the Court concluded that the petition was within the limitation period envisaged under Section 34(3). Holding that the arbitral award was contrary to the settled norms of “Fundamental Policy of Indian Law”, the Court allowed the petition and set aside the award.

Case Title: Monika Oli versus M/s CL Educate Ltd.

Citation: 2023 LiveLaw (Del) 73

Counsel for the Petitioner: 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

Counsel for the Respondent: Mr. Dhruv Mehta, Senior Advocate with Mr. Rajat Arora, Ms. Mariya Shahab and Mr. Shyam Agarwal, Advocates

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