Order IX Rule 13 CPC | Non-Service of Arbitral Award Notice Justifies Recall of Section 34 Application : AP HC

The Andhra Pradesh High Court has intervened in a case where petitioners were unaware of arbitration proceedings due to non-service of notice, directing the Arbitral Tribunal to treat a Section 34 application as one under Order IX Rule 13 CPC and suspending the arbitral award until determination. This judgment underscores the importance of procedural fairness in arbitration and the limited recourse available when parties are deprived of due process.

Background & Facts

The Dispute

The petitioners, Akbar Ali Khan Mayana and M. Fatnima Khanam, obtained a loan of Rs. 15,00,000 from the 1st respondent, M/s Shriram City Union Finance Limited, under a loan agreement dated 30.03.2017. The repayment terms required equated monthly installments (EMIs) of Rs. 45,625 over 60 months. Upon dishonour of cheques issued for EMI repayment, the respondent invoked the arbitration clause in the agreement.

Key Facts

• Loan Agreement Date: 30.03.2017
• Loan Amount: Rs. 15,00,000
• EMI Amount: Rs. 45,625 per month
• Arbitral Award Date: 09.09.2019
• Award Amount: Rs. 24,21,047 with future interest at 12% per annum
• Costs: Half of the costs directed to be borne by the respondents
• Execution Proceedings: Initiated in E.P.No. 57 of 2020 in A.R.C.No. 58 of 2019 before the V Additional District Judge, Rayachoty

Procedural History

• 30.03.2017: Loan agreement executed between petitioners and respondent.
• 09.09.2019: Arbitral award passed ex parte by the sole Arbitrator.
• 13.10.2020: Notice under Order XXI Rule 54(1A) CPC issued in execution proceedings.
• Post-09.09.2019: Petitioners claim non-receipt of notice of arbitration proceedings or the arbitral award.
• Post-Notice: Petitioners file an application under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the ex parte award, contending lack of knowledge of proceedings.
• Pending: The Section 34 application before the Arbitral Tribunal remains undetermined.
• 13.11.2020: Interim stay granted in I.A. No. 1 of 2020 in C.R.P. No. 1229 of 2020.
• 29.04.2026: Present Civil Revision Petition disposed of by the High Court.

The Parties' Positions

Petitioners

• Claimed ignorance of arbitration proceedings due to non-service of notice.
• Contended that the arbitral award was not served as required under Section 31(5) of the Arbitration and Conciliation Act, 1996.
• Argued that the limitation period for filing a Section 34 application had expired by the time they received notice of the execution proceedings.
• Relied on the Supreme Court judgment in Srei Infrastructure Finance Limited v. Tuff Drilling Private Limited [(2018) 11 SCC 470] to argue that the Arbitral Tribunal should consider their application for recall of the ex parte order.

Respondent

• Denied that any application under Section 34 was pending before the Arbitral Tribunal.
• Argued that even if such an application existed, it would not be maintainable before the Arbitral Tribunal, as Section 34 applications must be filed before the competent court as defined under Section 2(e) of the Act.
• Contended that the Arbitral Tribunal lacked jurisdiction to entertain or decide a Section 34 application.

Relief Sought

The petitioners sought:

1. Stay of all further proceedings in E.P.No. 57 of 2020 pending disposal of the Civil Revision Petition.
2. Extension of the interim stay granted in I.A. No. 1 of 2020 till disposal of the Civil Revision Petition.
3. Direction to the Arbitral Tribunal to treat their application as one under Order IX Rule 13 CPC and suspend the arbitral award until determination.

The Legal Issue

The central question was whether an Arbitral Tribunal can entertain an application under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside an ex parte arbitral award when the award was not served on the parties, and whether such an application could be treated as one under Order IX Rule 13 CPC for the limited purpose of recalling the ex parte order.

Arguments Presented

For the Petitioner

• Relied on Srei Infrastructure Finance Limited v. Tuff Drilling Private Limited [(2018) 11 SCC 470] to argue that the Arbitral Tribunal erred in refusing to consider their application for recall of the ex parte order.
• Contended that non-service of notice of arbitration proceedings and the arbitral award deprived them of the opportunity to challenge the award within the prescribed limitation period.
• Submitted that the Arbitral Tribunal should have considered their application under Order IX Rule 13 CPC, akin to setting aside an ex parte decree in civil proceedings.

For the Respondent

• Argued that no application under Section 34 was pending before the Arbitral Tribunal, as the petitioners failed to furnish any record of such an application.
• Contended that even if such an application existed, it would not lie before the Arbitral Tribunal, as Section 34 applications must be filed before the competent court under Section 2(e) of the Act.
• Submitted that the Arbitral Tribunal lacked jurisdiction to entertain or decide a Section 34 application.

The Court's Analysis

The Court examined the procedural lapses in the arbitration proceedings and the legal recourse available to the petitioners. Key observations included:

1. Jurisdiction of Arbitral Tribunal: The Court noted that while an application under Section 34 to set aside an arbitral award must be filed before the competent court, the petitioners' peculiar circumstances warranted intervention. The petitioners contended that they were unaware of the arbitration proceedings and the arbitral award due to non-service, which deprived them of the opportunity to challenge the award within the limitation period.

2. Non-Service of Award: The Court emphasized that Section 31(5) of the Arbitration and Conciliation Act, 1996 mandates service of the arbitral award on the parties. Non-compliance with this provision deprived the petitioners of their right to seek recourse under Section 34.

3. Analogy to Order IX Rule 13 CPC: The Court drew an analogy to Order IX Rule 13 CPC, which allows for setting aside an ex parte decree in civil proceedings. It held that the Arbitral Tribunal should consider the petitioners' application as one under Order IX Rule 13 CPC for the limited purpose of examining the reasons for non-participation in the proceedings.

4. Supreme Court Precedent: The Court relied on Srei Infrastructure Finance Limited v. Tuff Drilling Private Limited [(2018) 11 SCC 470], where the Supreme Court held that an Arbitral Tribunal erred in refusing to consider an application for recall of an order terminating proceedings under Section 25(a) of the Act. The Supreme Court directed the Tribunal to consider the application and grant an extension of time for filing the statement of claim.

"The Arbitrator would also have the benefit of verifying the claim of the petitioners with regard to non-service of notice of Arbitration and non-service of the Arbitral award in terms of Section 31(5) of the Arbitration and Conciliation Act, 1996."

1. Suspension of Award: The Court directed that the arbitral award shall remain suspended until the determination of the petitioners' application by the Arbitral Tribunal. However, this direction was clarified to be case-specific and not a precedent for all cases where an award is sought to be set aside.

The Verdict

The Court disposed of the Civil Revision Petition with the following directions:

1. The Arbitral Tribunal shall treat the petitioners' application as one under Order IX Rule 13 CPC and pass appropriate orders thereon.
2. The arbitral award dated 09.09.2019 shall remain suspended until the determination of the petitioners' application.
3. The parties are not precluded from resolving the dispute amicably, particularly in light of the petitioners' submission that they intend to repay the outstanding dues.
4. No order as to costs.
5. Pending miscellaneous petitions, if any, shall stand closed.

What This Means For Similar Cases

Procedural Fairness in Arbitration

This judgment reinforces the principle that procedural fairness is non-negotiable in arbitration proceedings. Arbitrators must ensure strict compliance with Section 31(5) of the Arbitration and Conciliation Act, 1996, which mandates service of the arbitral award on the parties. Failure to serve the award deprives parties of their right to challenge it under Section 34, potentially rendering the award unenforceable.

• Actionable Takeaway: Practitioners should ensure that arbitral awards are duly served on all parties to avoid challenges on grounds of procedural irregularity.

Limited Recourse for Non-Service

The Court's direction to treat the petitioners' application as one under Order IX Rule 13 CPC provides a limited recourse for parties who were unaware of arbitration proceedings due to non-service. However, this remedy is case-specific and not a general precedent.

• Actionable Takeaway: Parties aggrieved by non-service of notice or award should promptly approach the Arbitral Tribunal or competent court, citing this judgment to argue for recall of ex parte orders or awards.

Arbitral Tribunal's Jurisdiction

The judgment clarifies that Arbitral Tribunals lack jurisdiction to entertain Section 34 applications, which must be filed before the competent court. However, Tribunals can consider applications for recall of ex parte orders under Order IX Rule 13 CPC in exceptional circumstances.

• Actionable Takeaway: Parties must file Section 34 applications before the competent court, not the Arbitral Tribunal. However, in cases of non-service, they may seek recourse under Order IX Rule 13 CPC before the Tribunal.