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The Delhi High Court on Thursday set aside an arbitral award passed by the Arbitral Tribunal on grounds that that the borrower was not given a proper notice of appointment of the Arbitral Tribunal or of the arbitral proceedings.

A Single Bench of the High Court comprising Justice Vibhu Bakharu held,

“it does appear that one of the notices sent to the petitioner at her correct address had not been received back but, in the facts of the present case, where the petitioner has affirmed on affidavit that she had not received any notice from the Arbitral Tribunal and the respondents have failed to establish that the same was delivered to the petitioner,………… In view of the above, the impugned award insofar as the petitioner is concerned, is set aside.”

The petitioner, Ms. Komal Narula, filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (‘A&C Act’) impugning an arbitral award dated 01.05.2016 passed by the Arbitral Tribunal comprising of a Sole Arbitrator.

The petitioner contended that because she was not given a proper notice of appointment of the Arbitral Tribunal or of the arbitral proceedings therefore she was unable to defend the case.

The Court concluded that the respondents, DMI Finance Pvt. Ltd. and DMI Housing, have failed to establish that the petitioner was duly served of the notices regarding constitution of the Arbitral Tribunal or had due notice of the arbitral proceedings at the material time.

Backdrop of the Case-

A dispute arose between the parties in relation to a Common Loan Agreement. A Common Loan Agreement was executed between DMI Finance & DMI Housing and Ms. Komal Narula (the petitioner), Mr. Nitin Chawla, Mr. Harsh Chawla, Mr. Jitin Chawla and Chawla Iron Traders Private Limited.

On the account of failure to make the payments for EMIs regularly, the respondents lodged an FIR against the borrowers alleging commission of offences under Sections 420/467/468/471/120B of the Indian Penal Code (IPC). The respondents also instituted proceedings under Section 138 of the Negotiable Instruments Act, 1881 for the dishonour of cheques.

Further invoking the Arbitration Clause in the loan agreement a notice was issued to the borrowers to be present before the Arbitrator. However, the Borrowers (including the petitioner) were not represented. Therefore, the arbitral proceedings culminated in a arbitral award.

Aggrieved by the disputed award, the petitioner filed a petition before Delhi High Court.

Counsel of the petitioner contended before the court that the petitioner, a house wife, did not participate in any business activities after she divorced Mr. Nitin Chawla (Partner in the borrower company) in the year 2016 and was also assured that she would be removed as a director of the borrower company.

He further contended that the respondents despite knowing about the divorce and also the fact that she had moved her residence to another place, the same, they did not affect the service at the new address.

On the other hand, the court noted that as per the record of proceedings before the Arbitral Tribunal, notices were sent to the parties regarding the arbitral proceedings but the envelopes, in which the notices were sent, were received back with the noting “refused”. In the circumstances, the Arbitral Tribunal recorded that the respondents were deemed to have been served.

However, the court found merit in the contention that the record does not clearly establish that the petitioner had in fact received notice of the proceedings at the said address.

The court observed,

“It is important to note that that the Arbitral Tribunal had proceeded on the basis that the petitioner had refused service of the notice. But, there is no evidence or any material to indicate that the petitioner had refused service of the notice sent to her at her Paschim Vihar address.”

Allowing the petition, the court further clarified that for other borrowers the award was not interfered with and nothing stated in this order would preclude the respondents from enforcing the arbitral award against the other respondents.