In my view, the learned arbitrator is bound to follow principles of natural justice and fair play. Though section 19 of the Arbitration and Conciliation Act provides that Arbitral Tribunal shall not be bound by the Code of Civil Procedure, 1908 and/or Indian Evidence Act, 1872, the practice and principles of Code of Civil Procedure and evidence are required to be considered by the arbitrator for taking any decision. Learned arbitrator cannot consider disputed documents in evidence without it being proved. Perusal of the record indicates that both parties had not agreed before the Arbitral Tribunal that no oral evidence would be led by both the parties and the proceedings shall be conducted on the basis of the documents and other material. On the contrary, the record indicates that the petitioner filed affidavit in lieu of examination in chief and had offered himself for cross examination in support of his deposition on various disputed facts. The petitioner had also asked for permission to cross examine the respondent's witness but was rejected by the arbitrator for the patently illegal and irrelevant reasons. The learned arbitratorkvm ARBP363.11 therefore could not have conducted the matter only on the basis of documents and other material when the petitioner had asked for an opportunity to lead oral evidence and had made himself available for cross examination.
Print Page
Bombay High Court
Inhabitant vs Kokan Mercantile Cooperative ... on 5 February, 2013
Bench: R.D. Dhanuka
By this petition filed under section 34 of the Arbitration and Conciliation Act, 1996 (for short `Arbitration Act, 1996'), the petitioner seeks to challenge an award dated 15th February, 2011 made by the Arbitral Tribunal dismissing the dispute filed by the petitioner under section 84 of the Multi State Co-
operative Societies Act, 2002. Some of the relevant facts for the purpose of kvm ARBP363.11 deciding this petition are as under :-
2. Since 1986, petitioner was member of the respondent bank. For the period between 25th November, 2000 and March 2008, the petitioner was elected as the Chairman of respondent. In February 2008, once again the petitioner was elected as the director by mandate of the members of the respondent.
3. In the meeting of the respondent bank, on a querry raised by one of the members, it was decided to appoint M/s.Choksi and Choksi, Chartered Accountants to conduct an enquiry into the alleged irregularities of some accounts. Pursuant to the said resolution, M/s. Choksi and Choksi, Chartered Accountants submitted a report on 28th March, 2009. The petitioner was not heard or was called for any discussion when such enquiry was conducted by the said Chartered Accountants.
4. In the meeting of the Board of Directors of the respondent held on 2nd April, 2009, the said report dated 28th March, 2009 was tabled. It is the case of the petitioner that by letter dated 26th May, 2009, the respondent had requested the said Chartered Accountants to carry out the enquiry in the matter of transfer entries allowed in the accounts mentioned therein. However, no such enquiry was made out by the said Chartered Accountants in the said report on that kvmARBP363.11 issue. In the said report submitted by Chartered Accountants, it was opined that there were irregularities observed in the assessment/sanction of the credit facilities and credit supervision and monitoring of the various credit facilities of the specified parties which included non compliances, sanctions without following the relevant procedures, non reporting thereof and overall insufficient control. It was opined that the same was indicative failure of the team led by the chairman on those fronts. The petitioner was the chairman during the relevant period.
5. Pursuant to the said report of M/s. Choksi and Choksi, Chartered Accountants, the respondent vide their letter dated 1st June, 2009 sought opinion of Mr.Y.R.Naik, advocate who gave his opinion on the querry raised by the bank.
6. In the meeting of Board of Directors held on 8th June, 2009, the present Chairman of the bank moved a resolution for calling Special General Meeting for further action for the petitioner's expulsion. It is the case of the petitioner that on the basis of the alleged requisition dated 8th April, 2009 allegedly signed by about 400 members stating that the steps be taken against the petitioner for disqualifying the petitioner from the Board was admitted by the bank to oust the petitioner. The petitioner thereafter addressed a letter to verify the signature of the members. In response to the same, the respondent kvm ARBP363.11 vide its letter dated 15th June, 2009 informed that 100 signatures did not match with the members on the records of the bank.
7. On or about 8th May, 2009, the respondent issued show cause notice to the petitioner through its advocate calling upon the petitioner to show cause as to why should he not be expelled from membership for acting adversely in the interest of the bank by committing the illegal and irregular act. The petitioner was informed that the explanation of the petitioner would be placed before the General Body Meeting which would be called after a month for passing a resolution to expel the petitioner from the membership.
8. The petitioner replied to the said show cause notice through its advocate's letter dated 15th June, 2009 and explained all the so called irregularities in detail. The petitioner alleged that the acts complained of were that of the executive committee and that under no circumstances could the chairman be held responsible for any such alleged irregularity, singly or even otherwise.
9. On 8th June, 2009, the Board of Directors of the respondent passed a resolution calling upon the Special General Meeting on 5th July, 2009 for the expulsion of the petitioner and proposed to resolve that the petitioner be expelled from the membership of the respondent as he had acted detrimental to kvm ARBP363.11 the proper working of the bank by actions which was likely to cause financial loss to the bank and has caused damage to the reputation of the bank. The text of the said proposed resolution reads as under :-
"RESOLVED THAT Mr.Nazim H. Kazi be expelled from membership of Kokan Co-operative Bank Ltd., as he has acted in a manner detrimental to the proper working of the Bank by the actions which is likely to cause financial loss to the Bank and has caused damage to the reputation of the Bank."
10. By a letter dated 15th June, 2009, the petitioner through his advocate to M/s. Choksi and Choksi, Chartered Accountants alleged that report was biased and was not proper from the point of view of professional ethics. It was contended that the petitioner ought to have been given an opportunity of hearing before coming to any conclusion by the said Chartered Accountants.
The petitioner called upon the Chartered Accountants to review the said report by taking into accounts three specified statutory reports for the same period for which the Chartered Accountants had carried out their audit. The petitioner also informed that the petitioner would initiate appropriate action against the Chartered Accountants as the said report was at the behest of some interested persons who were interested in causing expulsion of the petitioner from membership. A copy of the said letter was produced by the petitioner on record of the arbitration proceedings.
kvm ARBP363.11
11. On 29th June, 2009, the petitioner filed a dispute before the learned arbitrator under section 84 of the Multi State Co-operative Societies Act, 2002 inter alia praying for quashing and setting aside the proceedings initiated by the respondent to expel the petitioner from membership of the respondent bank and also for quashing and setting aside notice dated 5th July, 2009 issued by the respondent for calling Special General Body Meeting.
12. The petitioner applied for ad-interim relief before the learned arbitrator.
The learned arbitrator placed the matter for orders on 3rd July, 2009. By order dated 3rd July, 2009 the learned arbitrator rejected the application for stay of the meeting of 5th July, 2009 and forwarded a copy of the said order at 06.30 p.m. The petitioner filed appeal under section 37 of the Arbitration and Conciliation Act, 1996 in this court and applied for ad-interim reliefs.
13. This court passed an order that at that stage, without prejudice to the rights and contention of both sides, it would be proper if the meeting convened on 5th July 2009 was allowed to be held and the resolution as proposed could be moved and discussed but if it was decided to expel the petitioner, then the resolution to that effect should not be given effect till the matter was heard for admission.
14. The Special General Body Meeting was held on 5th July, 2009. It is the case of the petitioner that when he reached the venue of the meeting at about kvm ARBP363.11 11.00 a.m., at the gate itself, he was informed by some of the shareholders that voting had already commenced and that the people were queued up for the same and immediately on voting, they were leaving. The petitioner verified the said fact from some of the shareholders leaving the venue after voting. It is the case of the petitioner that no meeting was held and the show cause notice or explanation was not read out to anyone. Even agenda of the meeting was not informed to the members. It is the case of the petitioner that no proper procedure was adopted by the Board. People were tutored before reaching the venue and asked to merely put "Yes" on the papers and hand it over to the staff seated there. There was no secret ballot. It is the case of the petitioner that interested directors and the present chairman had arranged for their supporting members to be collected from the districts by arranging for their transports and there was various cars outside the venue with antisocial elements who were non members. It is the case of the petitioner that even though total number of members of the respondent bank are 45,000, the respondent fixed up a venue i.e. St. Mary's School Auditorium for the Special General Meeting for 5th July, 2009. The capacity of auditorium was only 1,300 persons.
15. By an order dated 18th July, 2009, this court disposed of the appeal filed by the petitioner challenging the order dated 3rd July, 2009. In view of the resolution passed in the Special General Body Meeting resolved to expel the petitioner. This court, however, granted liberty to the petitioner to carry out the kvm ARBP363.11 amendment in the dispute filed by him before the Arbitral Tribunal and kept all the contentions of the parties open. The respondent was directed to furnish all the papers to the petitioner within one week from the date of the said order.
16. The petitioner thereafter applied for inspection of all the records including the verification slip with the signature identification of the members of the respondent, members register etc. However, the respondent refused to offer inspection of any such documents by letter dated 21st July, 2009. The petitioner thereafter filed an application before the learned arbitrator for a direction to the respondent to give inspection of the documents. The learned arbitrator by an order dated 23rd July, 2009 rejected the said application. By an order dated 7th August, 2009, this court disposed of Appeal (8 of 2009) filed by the petitioner clarifying that the rejection of the subject application by the Arbitral Tribunal will not come in the way of the petitioner to take out fresh application for inspection of the record after Tribunal permits the petitioner to amend the pleadings so as to challenge the factum of convening of meeting dated 5th July, 2009 as also the resolution passed therein. It was made clear that the application will have to be decided on its own merits in accordance with law uninfluenced by any observations made in the impugned decision.
The petitioner thereafter applied for amendment of the pleadings before the learned arbitrator. By an order dated 20th August, 2009, the learned arbitrator rejected the application for stay. The petitioner filed Arbitration Appeal (9 of kvm ARBP363.11 2009) challenging the said order dated 20th August, 2009. By an order dated 21st August, 2009 this court dismissed the said appeal and rejected the application for continuation of interim protection. Special Leave Petition filed by the petitioner against the said order also came to be dismissed while observing that all the contentions raised by the petitioner are kept open.
17. The petitioner thereafter filed affidavit of examination in chief in the month of July 2010 alongwith list of documents and the compilation of the documents relied upon by the petitioner which was taken on record by the learned arbitrator. By an application dated 13th October, 2010, respondent admitted all the documents except documents at Serial Nos. 22, 53 and 54 i.e. opinion of the advocate and two newspaper cuttings. The respondent thereafter admitted the documents at Serial No. 22 i.e. the opinion dated 5th June, 2009 given by the advocate of the bank. The respondent did not cross examine the petitioner and filed an affidavit of examination in chief of Mr.A.H.Khidir, General Manager of the respondent bank on 13th October, 2010. The petitioner also filed list of documents admitting and/or denying the documents relied upon by the respondent. In its list of documents submitted by the petitioner, the petitioner admitted the extract of the report of the Chartered Accountants, the extract of the statutory report dated 31st March, 2007, 31st March, 2008, copy of extract of RBI Report, National Audit Report and several other documents. The petitioner disputed number of documents including statement kvmARBP363.11 of loss alleged to have been incurred to the respondent bank due to Mamaji & Co. accounts. The petitioner also filed separate list containing the documents in respect of which contents were not admitted by the petitioner. It is the case of the petitioner that in the list of documents submitted by the respondent, reliance was placed on extract of the report of M/s.Choksi and Choksi etc. which was accepted by the petitioner and not the entire report.
18. It is the case of the petitioner that during the proceedings before the learned arbitrator, it was enquired from the petitioner that in the event the petitioner forgoes his right to cross examine the respondent bank, the respondent would forgo their right to cross examine the petitioner and proceed with the argument. The petitioner conveyed that he would like to cross examine the witness of the bank and that he too was ready to be cross examined by the bank. It is the case of the petitioner that the respondent thereafter made an oral application before the learned arbitrator that no cross examination was required to be led and the matter should be directly kept for arguments. The petitioner made an oral application to permit the petitioner to cross examine the witness of the respondent who had filed affidavit in lieu of examination of chief. By an order dated 19th January, 2011, the learned arbitrator rejected the request of the petitioner for cross examination of the witness of the respondent and directed that the proceedings shall be conducted on the basis of the documents and other material on record and kept the matter kvmARBP363.11 for final argument. The learned arbitrator held that it was for the arbitrator to see under which option section 24 of the Act, the present proceedings shall be conducted. Paragraphs 2 to 4 of the said order are relevant and are extracted as under :-
2) Now after amendment of the plaint along with the prayer the only prayer which is to be finally decided is prayer cl. Obviously on the basis of both the contents of the plaint of the disputant and written statement of the Respondent Bank, the expected issue that arises for my consideration is that whether the meeting dated 5th July 2009 & the resolution passed thereto shall be declared as illegal and invalid.
3) It is pertinent to note that the Disputant has filed his affidavit of evidence. The Respondents Advocate has to cross examine the Disputant but instead of cross examination the Advocate for the Respondents filed affidavit of evidence of the General Manager Mr.A.H.Khidir. It is obvious that the Respondent Bank do not want to cross examine the witness of the Disputant Mr.Nazim Hamid Kazi. However the Disputant is not willing to forfeit his right of cross examination to the witness of the Respondent. Therefore the Arbitral Tribunal shall decide whether to hold oral hearing for the presentation of evidence or for oral argument or whether the proceedings shall be conducted on the basis of documents and other materials. After hearing both the Counsels for the parties and considering the rulings/case laws I have to see under which option of Section 24 of the Arbitration and Conciliation Act the present proceedings shall be conducted.
The provisions of Section 19 of this act provides the determination of rules of procedure. As per the kvm ARBP363.11 provisions of this section the arbitral Tribunal shall not be bound by the code of civil procedure 1908 or Indian Evidence Act 1872. In this particular case if we consider the facts and circumstances of this case it would be appreciable to see the procedural flexibility, saved by valuable time and money and avoided the stress of a conventional trial. It is pertinent to bear in mind that the matter is in between Ex - Chairman of the Board of Directors of the Respondent and the Respondent Bank. Therefore there must be procedural flexibility, saved valuable time and money and also to avoid the stress of a conventional trial.
4) In this case huge number of documents are produced and for inspection of the documents much time was consumed. Both the parties filed their affidavit of evidence and the Disputant is insisting for cross examination of the witness of the Respondent bank. I have perused both the affidavits of evidence. Both the witnesses i.e. Mr.Nazim Hamid Kazi and Mr.A.H.Khidir refered the particular documents in their affidavits. All these documents referred by these witnesses are on record. It is pertinent to note that the most of the documents on record are admitted by the disputant. Admittedly sub section 4 of section 19 provides the power of the Arbitral Tribunal to determine the admissibility, relevance, materiality and weight of any evidence. Therefore if the disputant is allowed to cross examine the witness of the respondent Bank, it will consume lot of time and nothing could be brought on record, more than the documentary evidence and other material on record. The documents on record quite sufficient to go to the roof of the case and to decide the above stated issue/issues arise between the parties.
Therefore I am of the view that this proceedings shall be conducted on the basis of documents and other materials. I therefore pass the following order.
kvm ARBP363.11 ORDER The request of the Disputant for cross examination of the witness of Mr.A.H.Khidir for the Respondents is rejected.
The proceedings shall be conducted on the basis of the documents and other materials on record.
The proceedings shall be kept for final argument.
19. Both parties thereafter filed written arguments. In the affidavit in lieu of examination in chief filed by the petitioner, the petitioner had disputed the correctness of the report submitted by M/s.Choksi and Choksi, Chartered Accountants and had also deposed on the issue as to how the petitioner was not responsible for any acts which could be considered for expulsion of the petitioner. The petitioner also deposed about the conduct of the Special General Body Meeting held by the respondent on 5th July, 2009. The petitioner made various statements in the said affidavit against the board of directors of the respondent. From the perusal of the affidavit in lieu of examination in chief filed by the witness of the respondent, it is clear that the respondent also wanted to place reliance upon the report of M/s.Choksi & Choksi, Chartered Accountants and to prove the contents thereof. The witness of respondent also sought to prove about the diversion of fund by M/s.Mamaji Group and other parties. The witness also deposed about the procedure followed by the respondent while conducting Special General Body Meeting. It is common ground that it was at the request of the respondent that the cross examination of kvm ARBP363.11 either party should not be conducted and the matter should be decided on the basis of the documents that learned arbitrator passed that order.
20. By an award dated 15th February, 2011 the learned arbitrator rejected the dispute application filed by the petitioner and directed the petitioner to pay cost of Rs.25,000/- to the respondent. The said impugned award has been challenged by the petitioner in this proceedings under section 34 of the Act.
21. Ms.Castelino, the learned counsel appearing for the petitioner submits that under section 40(2) of Multi State Co-operative Societies Act, 2002 Special General Body Meeting could not have been requisitioned at the instance of the board of directors. It is submitted that it was admitted by the respondent that the meeting was called at the instance of the Board of Directors and not at the requisition of the members. It is submitted that it was not even the case of the respondent that the said meeting was called by the Central Registrar or by any persons under his authority under section 40(2) of the said Multi State Co-operative Societies Act, 2002. The learned counsel placed reliance upon bye-law 28 of the respondent bank and submits that meeting could be requisitioned in writing by the Central Registrar or by 1/5th of total number of the members of the bank to transact the business.
kvm ARBP363.11
22. Section 40 of the Multi State Co-operative Societies Act, 2002 reads thus :-
40. Special general meeting of general body.-
(1) The Chief Executive may, at any time, on the direction of the Board, call a Special General Meeting of the Society and shall call such meeting within one month after the receipt of a requisition in writing from the Central Registrar or from such member or members or a proportion of the Total number of members, as may be provided in the bye-Laws.
(2) If a Special General Meeting of a Multi-State Co-operative Society is not called in accordance with the requisition referred to in sub-section [1], the Central Registrar or any other person authorised by him in this behalf shall have the power to call such meeting and that meeting shall be deemed to be a meeting called by the Chief Executive in accordance with the provisions of that sub-section and the Central Registrar may order that the expenditure incurred in calling such meeting shall be paid out of the funds of the Society or by such person or persons who, in the opinion of the Central Registrar, was or were responsible for the refusal or failure to convene the Special general meeting.
Bye-law 28 of the respondent bank provides as under :-
(1) The Chief Executive may, at any time, on the direction of the Board, call a Special General Meeting of the Society and shall call such meeting within one month after the receipt of a requisition in writing from the Central Registrar or from 1/5th of the total number of members of the Bank to transact the business as stated in the letter.
kvm ARBP363.11
23. The learned counsel placed reliance upon section 40 read with bye-law 28 and submits that the requisition of the meeting itself was illegal and was not in accordance with the said provisions and thus the decision taken in such meeting by the respondent was also illegal.
24. Mr.Sakhardande, the learned counsel appearing on behalf of the respondent on the other hand on this issue submits that Special General Body Meeting could be requisitioned by the Board of Directors or by the Central Registrar or by the members. The learned counsel submits that no restricted meaning could be given to section 40 of the Act. The learned counsel submits that in this case, the Chief Executive of the respondent called the said meeting of the directors of the Board and accordingly notice was issued. Subsequently the bank on 3rd July, 2009 had sought clarification from the Central Registrar of Co-operative Societies, Government of India, Ministry of Agriculture and Co-
operation as to whether the Chief Executive of the respondent bank under Multi State Co-operative Societies Act and bye-law No.28 was entitled to convene a special body meeting for expulsion of the petitioner from the membership. On 8th July, 2009, the Director (Co-operation), Government of India, Ministry of Agriculture, Department of Agriculture and Co-operation had sent a reply to the bank stating that the Chief Executive of the respondent bank could call the Special General Meeting of the bank on the direction of the Board of Directors. The learned counsel would submit that this issue was kvm ARBP363.11 already decided by this court in the earlier appeal filed by the petitioner. The learned counsel submits that though it is made clear that all the issues are kept open by the Hon'ble Supreme Court, he submits that the interpretation of section 40 by this court was the only possible interpretation which was accepted by the learned arbitrator. It is submitted that interpretation of the provisions of the Act and the bye-laws by the learned arbitrator is a possible interpretation and thus this court shall not substitute the interpretation of the learned arbitrator by taking different view.
25. Perusal of the award indicates that the learned arbitrator has dealt with this issue at length in paragraphs 17 and 18 of the impugned award and has placed reliance upon the clarificatory letter dated 8th July, 2009 issued by the Government of India that the Chief Executive of the bank could call the Special General Meeting at the directions of the Board Directors and the bank has followed the correct procedure as per the provisions of Section 40 of the Multi State Co-operative Societies Act read with bye-law 28. In my view on this issue interpretation of the learned arbitrator of section 40 of the Act and bye-law 28 is a possible interpretation and thus no interference is warranted on this findings rendered by the learned arbitrator based on the interpretation of the provisions.
26. The next submission of the learned counsel appearing for the petitioner is that the entire action was initiated by the bank in anticipation of the kvm ARBP363.11 likelihood of default of the loanees in repayment of the loan and credit facility and the consequent likely damage to the bank. The show cause notice proceeded on such erroneous premise of anticipation loss and thus action was premature. No action could be taken on the basis of such anticipated and/or likelihood of default of loanees in future. The learned counsel submits that on the contrary respondent bank was able to recover all the loans from all such loanees during the period when the petitioner was chairman. It is submitted that the petitioner alone could not be held responsible. The submission of the learned counsel is that the learned arbitrator has not even discussed or dealt with such crucial issues in the entire award.
27. Mr.Sakhardande, the learned counsel appearing for the respondent on this issue submits that the bank could not recover the entire amount from the loanees and interest was required to be waived in number of cases for which the petitioner alone was responsible for causing loss to the respondent bank.
28. Perusal of the award indicates that this issue has not been considered by the learned arbitrator at all in the entire award as to whether any action for expulsion of the petitioner from the membership could be taken based on anticipation or likelihood of default. In my view, the action on the part of the respondent was premature.
kvm ARBP363.11
29. The next submission of the learned counsel appearing for the petitioner is that though both parties had filed affidavits in lieu of examination in chief and though the petitioner had sought liberty to cross examine the witness sought to be examined by the respondent, the learned arbitrator not only rejected the said application for cross examining the witness but erroneously held that the proceedings shall be conducted on the basis of the documents and other material. The learned arbitrator in the order dated 19th January, 2011 rejected the said application of the petitioner and observed that the respondent did not want to cross examine the witness of the petitioner and was not willing to forfeit his right of cross examination of the witness of the respondent. The learned arbitrator observed that in this case huge number of documents were produced and for inspection of the documents, much time was consumed. The learned arbitrator recorded that he had perused both affidavits of evidence and all such documents referred by both witnesses were on record. It is observed that most of the documents were admitted by the petitioner (original disputant).
The learned arbitrator observed that if the petitioner was allowed to cross examine the witness of the respondent bank, it would consume a lot of time and nothing could be brought on record more than the documentary evidence and other material on record. It is observed that the documents on record is sufficient to go to the root of the case and to decide the issues raised between the parties. The learned counsel for the petitioner submits that this view of the learned arbitrator while rejecting the application of the petitioner to cross kvm ARBP363.11 examine the respondent's witness and not allowing the petitioner to lead oral evidence though he had offered himself for cross examination is totally perverse and is in gross violation of principles of natural justice. The learned counsel submits that even if the respondent did not want to cross examine the witness examined by the petitioner though he had offered himself for cross examination, the learned arbitrator could not have decided to proceed with the matter only based on documentary evidence. The petitioner submitted that by way of examination in chief, the petitioner had proposed to prove various disputed facts and more particularly about the contents of the report submitted by the Chartered Accountants and also about the illegalities committed by the respondent while conducting Special General Body Meeting. The learned counsel submits the fact that there was no cross examination of the petitioner on the deposition made in the affidavit filed by the petitioner, the deposition made by the petitioner in such affidavit were uncontroverted and are deemed to have been proved. The learned arbitrator has totally ignored the deposition of the petitioner made in the said affidavit and thus award is in violation of principles of natural justice.
30. The learned counsel for the petitioner placed reliance upon the judgment of the Supreme Court in case of Oil and Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.1, Delhi Development Authority vs. R.S.Sharma & Co.2 1 (2003) 5 SCC 705 2 2008 (13) SCC 80 kvm ARBP363.11 unreported judgment of this court delivered on 17th March, 2011 in case of M/s.Jayant Industrial Packaging Ltd. & Ors. vs. The Saraswat Co-operative Bank Ltd. & Anr. in Arbitration Petition No. 282 of 2006, Judgment of Supreme Court in case of M/s.Bareilly Electricity Supply Co. Ltd. vs. The Workmen and others3 judgment of this court delivered on 3rd December, 2010 in case ofMunicipal Corporation of Greater Mumbai vs. Hindustan Construction Company Ltd. in Arbitration Petition No. 65 of 2008, judgment of Supreme Court in case of K.P.Poulose vs. State of Kerala & Another4 judgment of the Supreme Court in case of State of Rajasthan and another vs. M/s.Ferro Concrete Construction Pvt. Ltd.5 in support of his plea that the arbitrator was bound to observe the principles of natural justice, the learned arbitrator not having allowed the petitioner to lead oral evidence and not permitted the petitioner to cross examine the witness of the respondent has violated the principles of natural justice. The learned counsel also placed reliance upon the aforesaid judgments in support of the plea that the arbitrator had committed error of finding of facts which are bearing on the award and such finding is patently illegal and easily demonstrable without necessity to weigh the various possible view points. Such illegal findings can be interfered with by the court under section 34 of the Arbitration and Conciliation Act, 1996.
3 AIR 1972 SC 330 4 (1975) 2 SCC 236 5 2009 (7) SCJ 380 kvm ARBP363.11
31. Mr. Sakhardande, the learned counsel appearing for the respondent on the other hand submits that in so far as the report of M/s.Choksi and Choksi, Chartered Accountants relied upon by the respondent is concerned, the petitioner in his list of admitted and disputed documents submitted before the learned arbitrator had not disputed the existence and contents of the said report.
It is submitted that most of the documents relied upon by the parties against each other were admitted and thus the learned arbitrator was right in refusing to permit the parties to rely upon the affidavit of evidence and to proceed on the basis of the documentary evidence. The learned counsel submits that copy of the show cause notice as well as reply given by the petitioner to such show cause notice and all other relevant documents were made available to the members of the bank for inspection before voting was held in the Special General Body Meeting. It is submitted that under section 19 read with section 24 of the Arbitration and Conciliation Act, 1996, the Arbitral Tribunal was not bound by the Code of Civil Procedure, 1908 or Indian Evidence Act, 1872.
Sections 19 and 24 of the Arbitration and Conciliation Act, 1996 reads thus :-
19. Determination of rules of procedure.
(1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908 ). or the Indian Evidence Act, 1872 (1 of 1872 ).
(2) Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings.
kvm ARBP363.11 (3) Failing any agreement referred to in sub-
section (2), the arbitral tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate.
(4) The power of the arbitral tribunal under sub- section (3) includes the power to determine the admissibility, relevance, materiality and weight of' any evidence.
24. Hearings and written proceedings.
(1) Unless otherwise agreed by the parties, the arbitral tribunal shall decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings shall be conducted oil the basis of documents and other materials: Provided that the arbitral tribunal shall hold oral hearings, at an appropriate stage of the proceedings, on a request by a party, unless the parties have agreed that no oral hearing shall be held.
(2) The parties shall be given sufficient advance notice of any hearing and of any meeting of the arbitral tribunal for the purposes of inspection of documents, goods or other property.
(3) All statements, documents or other information supplied to, or applications made to, the arbitral tribunal by one party shall be communicated to the other party, and any expert report or evidentiary document on which the arbitral tribunal may rely in making its decision shall be communicated to the parties.
32. It is submitted that the Arbitral Tribunal is empowered to conduct the proceedings in the manner it considers appropriate and has power to determine the admissibility, the relevance, materiality and weight of any evidence. It is kvm ARBP363.11 submitted that the Arbitral Tribunal is empowered to decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings shall be conducted on the basis of documents and other material. The learned counsel submits that as the petitioner has not disputed the contents of the report submitted by the Chartered Accountants and the entire dispute has arisen based on such report, it was not necessary for the respondent to lead any oral evidence to prove the contents of such report. The learned arbitrator was thus right in exercising its power undersection 24 to decide to proceed on the basis of documents and other material on record. The learned counsel would submit that there was no prejudice caused to the petitioner merely because he was not allowed to cross examine the respondent's witness or to lead oral evidence by filing affidavit.
33. Perusal of the affidavit of examination in chief filed by the petitioner indicates that the petitioner had challenged the report submitted by M/s.Choksi and Choksi, Chartered Accountants on several grounds including the fact that the petitioner was not given any hearing or called by the said Chartered Accountants before preparing any such report. The petitioner had also deposed that the complete papers were not furnished to the said Chartered Accountants by the bank and the report was result of incomplete information. The petitioner had also raised objection by addressing a letter to M/s.Choksi and Choksi, Chartered Accountants asking them to withdraw the said report and/or kvm ARBP363.11 to review. The petitioner had made allegations of bias against the said report of the Chartered Accountants. The petitioner had also deposed on the issue that there was no loss or otherwise caused to the bank in respect of various accounts such as Y.A.Mamaji and its sister concern etc. The petitioner had also deposed on the issue as to what transpired noticed by the petitioner when he visited the venue to participate in the Special General Body Meeting. Perusal of the award indicates that the learned arbitrator has placed heavy reliance on the report submitted by the M/s.Choksi & Choksi, Chartered Accountants. The learned arbitrator had already rejected application of the petitioner for seeking inspection of the documents referred to and relied upon by M/s.Choksi & Choksi, Chartered Accountants. The learned arbitrator referred to the report in which there was reference to the books of accounts of various parties alleged to have been inspected by M/s.Choksi & Choksi, Chartered Accountants. Based on such report, the learned arbitrator rendered a finding that the petitioner was the whole and sole person responsible for irregularities observed in assessment, sanction of credit facilities and credit supervision and monitoring of the various credit facilities of the specified parties as referred in the audit report. It is also observed that the petitioner was rightly singled out by the present chairman and Board of Directors for initiating the proceedings for expulsion of the petitioner. The learned arbitrator rendered a finding that no specific case was made out by the petitioner regarding any irregularities for sanctioning the credit facilities loan applications etc. by member of the Board of Directors.
kvm ARBP363.11 The learned arbitrator also rendered a finding that the petitioner had granted loan to non-members and had illegally sanctioned loans and credit facilities in the sum of Rs. 11 crores which was not utilised for purpose of sanction and the fund was diverted for acquisition of fixed assets, investment in associate company/subsidiaries and acquisition of shares etc. and was not monitored which caused monetary loss and damage to the reputation of the respondent.
The learned arbitrator also recorded a finding that there was no substantial evidence in support of the allegations of the petitioner that no credit procedure as per provisions of concern law and bye-law was not followed by the respondent for expelling him. The learned arbitrator rejected the contention of the petitioner that he was not given sufficient opportunity to examine his case before initiating the proceedings for expelling him from membership and in passing a resolution thereof in the General Body Meeting. In so far as the conduct of the respondent in Special General Body Meeting is concerned, the learned arbitrator rendered a finding that except more allegations, nothing could be brought on record by the petitioner to prove the allegations made by the petitioner. The learned arbitrator drew interference that if there was any difficulty faced by any of the members, they could have made complaint to the officers who conducted the casting of votes of the members at the venue of the Special General Body Meeting. The learned arbitrator also gave a finding that that was not a gathering of the members at a time but the members had to cast their votes one by one and to vacate the venue.
kvm ARBP363.11
34. Affidavit in lieu of examination in chief filed by the witness of the respondent indicates that the witness of the respondent in the said affidavit had deposed that report submitted by M/s.Choksi and Choksi, Chartered Accountants was based on various documents considered by the Chartered Accountants. The witness also had deposed about various loan accounts sanctioned by the bank when petitioner was chairman. The respondent also placed reliance upon the video recording of the entire proceedings from the beginning till end. The witness deposed that meeting was properly held and the petitioner was validly expelled from the membership. From the perusal of both the affidavits, it is thus clear that both parties had deposed in their respective affidavits about relevance and proof of the report submitted by the Chartered Accountants and also about the validity and the manner of conducting the Special General Body Meeting by the respondent in which resolution came to be passed to expel the petitioner. The petitioner had highlighted the illegality committed in conducting meetings by the respondent.
It is clear that various disputed facts were pleaded in both the affidavits which were not forming part of any record and sought to be proved by leading oral evidence. It is not in dispute that though the petitioner who had rendered affidavit in lieu of examination in chief and had offered himself for cross examination by the respondent or through their advocate but no such cross examination was conducted by the respondent or its advocate. It is also not in dispute that the witness proposed to be examined by the respondent who had kvm ARBP363.11 also filed affidavit in lieu of examination in chief had refused to make himself available for cross examination and opposed the application of the petitioner to cross examine the witness of the respondent. The learned arbitrator passed an order refusing to permit the inspection of the relevant documents which were considered by the Chartered Accountants in its report. Admittedly the petitioner was not called by the Chartered Accountants for any explanation or was not heard before any such report was submitted by the said Chartered Accountants. The petitioner by his letter had already disputed the entire report as incorrect and also on the ground of the report being biased. The learned arbitrator proceeded on a erroneous basis that the respondent had agreed to give up its right to cross examine the petitioner and therefore the petitioner also should not cross examine the witness of the respondent. The learned arbitrator proceeded on the basis that most of the documents were admitted by both the parties and if oral evidence was permitted it would waste further time. The learned arbitrator accordingly based on such ruling refused to permit the parties to lead oral evidence and more particularly the petitioner who had filed affidavit of evidence and had offered himself for cross examination.
35. The award of the learned arbitrator indicates that the finding has been rendered by the learned arbitrator against the petitioner after relying upon the report submitted by the Chartered Accountants who was not examined by the respondent as a witness, inspection of the documents referred to and relied kvm ARBP363.11 upon by the Chartered Accountants in the said report was not furnished, dispute of the petitioner has been rejected for want of independent evidence controverting the findings of the Chartered Accountants and also on the issue of procedure followed by the respondent in conducting the Special General Body Meeting for expelling the petitioner.
36. In my view, the learned arbitrator has relied upon disputed documents and more particularly contents of report of Chartered Accountants which were disputed by the petitioner by addressing a letter to the Chartered Accountants which was forming part of the record before the learned arbitrator and thereafter by challenging the said report in the affidavit in lieu of examination in chief filed by the petitioner. The learned arbitrator rendered finding on the issue that the procedure was validly followed by the respondent while expelling the petitioner and that the petitioner could not prove any illegalities in the procedure followed by the respondent. The learned arbitrator in my view did not give an opportunity to the petitioner to prove his case by taking the said affidavit in lieu of examination in chief filed by the petitioner on record and by giving an opportunity to the petitioner to cross examine the respondent's witness if his affidavit was to be taken on record of evidence. In any event, since there was no cross examination of the petitioner's witness on any part of deposition made in the affidavit in lieu of examination in chief, such statement remained uncontroverted and thus have deemed to have been kvm ARBP363.11 proved. In my view merely because the Chartered Accountants' report was taken on record, the contents thereof could not be considered as proved by the learned arbitrator. In my view, the learned arbitrator has relied upon the disputed documents and that also without giving the proper opportunity of leading evidence to the petitioner. The learned arbitrator in my view has committed gross violation of principles of natural justice.
37. In my view, the learned arbitrator is bound to follow principles of natural justice and fair play. Though section 19 of the Arbitration and Conciliation Act provides that Arbitral Tribunal shall not be bound by the Code of Civil Procedure, 1908 and/or Indian Evidence Act, 1872, the practice and principles of Code of Civil Procedure and evidence are required to be considered by the arbitrator for taking any decision. Learned arbitrator cannot consider disputed documents in evidence without it being proved. Perusal of the record indicates that both parties had not agreed before the Arbitral Tribunal that no oral evidence would be led by both the parties and the proceedings shall be conducted on the basis of the documents and other material. On the contrary, the record indicates that the petitioner filed affidavit in lieu of examination in chief and had offered himself for cross examination in support of his deposition on various disputed facts. The petitioner had also asked for permission to cross examine the respondent's witness but was rejected by the arbitrator for the patently illegal and irrelevant reasons. The learned arbitratorkvm ARBP363.11 therefore could not have conducted the matter only on the basis of documents and other material when the petitioner had asked for an opportunity to lead oral evidence and had made himself available for cross examination.
38. In case of M/s.Bareilly Electricity Supply Co. Ltd. (supra), the Supreme Court while dealing with identical provisions under the provisions of Industrial Dispute Act in paragraph (14) of the said Judgment held as under :-
14. ...........
But the application of principle of natural justice does not imply that what is not evidence can be acted upon. On the other hand what it means is that no materials can be relied upon to establish a contested fact which are not spoken to by persons who are competent to speak about them and are subjected to cross-examination by the party against whom they are sought to be used. When a document is produced in a Court or a Tribunal the questions that naturally arise is, is it a genuine document, what are its contents and are the statements contained therein true. When the Appellant produced the balance-sheet and profit and loss account of the Company, it does not by its mere production amount to a proof of it or of the truth of the entries therein. If these entries are challenged the Appellant must prove each of such entries by producing the books and speaking from the entries made therein. If a letter or other document is produced to establish some fact which is relevant to the enquiry the writer must be produced or his affidavit in respect thereof be filed and opportunity afforded to the opposite party who challenges this fact. This is both in accord with principles of natural justice as also according to the procedure under Order XIX Civil Procedure Code and the Evidence Act both of which incorporate these general principles. Even if all kvm ARBP363.11 technicalities of the Evidence Act are not strictly applicable except in so far as Section 11 of the Industrial Disputes Act 1947 and the rules prescribed therein permit it, it is inconceivable that the Tribunal can act on what is not evidence such as hearsay, nor can it justify the Tribunal in basing its award on copies of documents when the originals which are in existence are not produced and proved by one of the methods either by affidavit or by witnesses who have executed them, if they are alive and can be produced. Again if a party wants an inspection, it is incumbent on the Tribunal to give inspection in so far as that is relevant to the enquiry. The applicability of these principles are well recognised and admit of no doubt.
39. The judgment of the Supreme Court has been subsequently followed by this Court in case ofMunicipal Corporation of Greater Mumbai vs. Hindustan Construction Company Ltd. (supra). Para (9) of the said Judgment reads thus :-
9. Now it is no doubt well settled that an arbitral Tribunal is not bound by the strict rules of evidence which govern civil trial. But, equally ever since the judgment of the Supreme Court in Bareilly Electricity Supply Co. Ltd. Vs. The Workmen, (AIR 1972 SC 330) it is well settled that the principles of natural justice must be observed even if an adjudicating body is not governed by the strict rules of evidence or procedure. The Supreme Court observed that the application of the principles of natural justice does not imply that what is not evidence can be acted upon. The judgment of the Supreme Court would also buttress the contention of the Respondent that the minutes of the meeting of 15 September 2004 could not have been relied upon when neither the original was produced nor was any justification kvm ARBP363.11 put forth for the absence of the signed copy of the original.
40. In my view, expulsion of a person from the office on the ground of illegal and irregular act is a serious matter and no such action can be taken unless such person is given a proper opportunity to prove him innocent and unless such serious allegations are strictly proved after compliance with principles of natural justice. From the perusal of the record and impugned order passed by the learned arbitrator, it is clear that the petitioner was was not given sufficient opportunity to prove his innocence. The respondent also did not produce sufficient evidence to prove the petitioner guilty of illegal and irregular act. The learned arbitrator has grossly violated principles of natural justice in this case and has decided the issue mechanically. Perusal of the award indicates that on one hand the arbitrator has not allowed petitioner to lead oral evidence and on the other hand has rejected the dispute filed by the petitioner for want of evidence. Such finding in my view are patently illegal and in violation of principles of natural justice and warrants interference of this Court under section 34 of the Act.
41. I, therefore, pass the following order :-
(a) Impugned award dated 15th February, 2011
is set aside on the ground of violation of
kvm
ARBP363.11
principles of natural justice.
(b) Petitioner would be at liberty to invoke
arbitration proceedings afresh. It is made clear that if arbitration is invoked again by the petitioner, the learned arbitrator shall make an endevour to dispose of the arbitration proceedings expeditiously and not later than six months from the date of producing copy of this order on record.
(c) Petition is disposed off in the aforesaid
terms.
(d) There shall be no order as to costs.
(R.D. DHANUKA, J.)
No comments:
Post a Comment