Arbitrator Justified In Treating Loan Admission In Correspondence As Admitted Claim Under Order XII Rule 6 CPC: Delhi High Court

The bench noted that the purpose of this rule is to allow a party to secure a speedy judgment, at least to the extent of the relief that the plaintiff is entitled to based on the defendant's admission.

Brief Facts:

The matter pertained to an appeal which was filed under Section 37(1)(c) of the Arbitration & Conciliation Act, 1996 challenging the judgment delivered by the Single Judge of the Delhi High Court. The judgment upheld the arbitral award rendered by the Sole Arbitrator which directed Shutham Electric Ltd (Appellant) to pay Rs. 2.5 crores along with interest at the rate of 5% per annum to Vaibhav Raheja (Respondent No. 1), who was the claimant in the arbitration proceedings. The dispute arose from a loan agreement entered into between the Appellant and Respondent No. 1 for the amount of Rs. 2.5 crores. The Sole Arbitrator allowed the claim after finding that the Appellant had made admissions regarding its liability under the loan agreement, which led to the arbitral award being passed in favor of Respondent No. 1. The Arbitrator also allowed the application of Respondent No. 1 under Order XII Rule 6 of the Code of Civil Procedure, 1908.

The Appellant before the High Court argued that the Single Judge failed to appreciate that the claim of Respondent No. 1 was barred by limitation. The Appellant highlighted that the loan agreement was dated 14th June 2013, and the last alleged admission of liability was made on 2nd February 2017. However, the notice invoking arbitration was issued on 18th November 2019, well beyond the limitation period, and it was issued to an incorrect address. The Appellant contended that this was a violation of Section 21 of the Arbitration Act and argued that the Sole Arbitrator should have dismissed the claim as time-barred.

Further, the Appellant argued that the appointment of the Sole Arbitrator was not in accordance with the arbitration agreement between the parties. The arbitration clause, as per Clause 13.3 of the loan agreement, stipulated that an arbitral tribunal would consist of three arbitrators, whereas in this case, only a single arbitrator was appointed. The Appellant contended that this was contrary to the terms of the agreement and the law.

Additionally, the Appellant challenged the awarding of interest by the Arbitrator. It argued that the cause of action for the demand of interest arose on 18th May 2016, and since the notice invoking arbitration was issued only on 18th November 2019, the Arbitrator lacked the jurisdiction to award interest on the outstanding amount. The Appellant sought to have the award set aside based on these grounds.

Observations by the High Court:

The High Court referred to the decision of the Supreme Court in the case of Uttam Singh Duggal & Co. Ltd. v. United Bank of India (2000) 7 SCC 120 where the Supreme Court clearly enunciated the purpose of Order XII Rule 6 and held that the rule was intended to allow a court to pass judgment on the basis of admitted facts to expedite the process, particularly where there was a clear admission from one party. The Supreme Court noted that where the defendant made a plain and unambiguous admission, it was appropriate for the court to grant a speedy judgment to avoid unnecessary delay.

Therefore, the High Court observed that the Single Judge rightly held that the Appellant had admitted its liability concerning the repayment of the loan in question through correspondence between the parties. The High Court referred to a letter dated 2nd February 2017, where the Appellant acknowledged the outstanding loan of Rs. 2.5 crores and sought an extension for repayment until March 31, 2017. This correspondence, signed by the Appellant's Managing Director, constituted a clear admission of the debt. The High Court held that such admissions were sufficient grounds for invoking Order XII Rule 6 and passing a judgment accordingly.

The High Court also addressed the Appellant's argument regarding the notice invoking arbitration. It found that the notice dated 18th November 2019 had been served at two addresses, with only one address containing a typographical error. The High Court held that the notice had been duly served at the correct address via registered post, and the postal receipts submitted by the Respondent further established proof of service. Citing Section 27 of the General Clauses Act, the High Court held that a presumption of service arose once the notice was sent by registered post. Hence, the Appellant's contention that the notice was not properly served or was served beyond the limitation period was dismissed by the High Court.

Further, the High Court agreed with the findings of the Single Judge that the Appellant had failed to deny the existence of the loan both before the arbitrator and in the reply to the Respondent's application under Order XII Rule 6. It held that the Appellant's contemporaneous correspondence clearly demonstrated that it acknowledged the debt, and as such, it was logical to infer that the Appellant was also liable to pay interest on the outstanding loan amount. It held that arbitral award, therefore, rightly included both the principal amount and the interest due.

On the Appellant's objection to the constitution of the arbitral tribunal, the High Court rejected the argument and held that the Appellant itself failed to adhere to the arbitration agreement, which had led the Respondent to file an application under Section 11 of the Arbitration Act. The High Court further observed that the Appellant had not raised any objections when the Sole Arbitrator was appointed by a Single Judge of this Court.

The High Court noted the Appellant's apparent belief that the arbitral award marked the beginning of a new phase of litigation before the courts. The High Court clarified that such a stance was contrary to the objectives of the Arbitration Act which aims to minimize judicial intervention in arbitral proceedings. The High Court further held that the scope of proceedings under Section 37 of the Arbitration Act was even narrower than that under Section 34, which does not allow for a re-assessment of the evidence or a de novo review of the merits of the case.

Therefore, the appeal was dismissed.

Case Title: Shutham Electric Ltd. Vs Vaibhav Raheja & Anr.

Citation: 2024 LiveLaw (Del) 1016

Case Number: FAO(OS) 125/2024 & CM APPLs.52729-52732/2024

Advocate for the Petitioner: Mr.Ramesh Singh, Sr.Advocate with Mr.Ashutosh Kumar, Mr.Arunava Mukherjee, Mr.Nisarg P.Khatri, Mr.Kushagra Sharma and Ms.Hage Nanya, Advocates.

Advocate for the Respondent: None

Date of Judgment: 10th September, 2024

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