Bombay High Court
Fortune Integrated Assets Finance Ltd vs Srilakshmi Sai Auto Finance And 3 Ors on 27 June, 2023
Author: Bharati Dangre
Bench: Bharati Dangre
2023:BHC-OS:5788
1/14 CARAPL-2130-22.odt
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMM. ARBITRATION APPLICATION (L) NO.2130 OF 2022
Fortune Integrated Assets Finance .. Applicant
Versus
M/s.Srilakshmi Sai Auto Finance & .. Respondents
Ors.
...
Ms.Savita Nangare with Mr.Vinod Nagula i/b Atham Legal for
the Applicant.
Mr.Anoop U. Patil for the Respondent Nos.1 to 3.
...
CORAM: BHARATI DANGRE, J.
DATED : 27th JUNE, 2023 P.C:-
1. The Arbitration Application is fled by the applicant, a non-banking fnance company, registered with Reserve Bank of India, and is engaged in the business of providing/advancing fnance for purchasing new and used commercial vehicles and accessories thereof, through various schemes foated by it.
The application seeks appointment of a sole Arbitrator and in order to adjudicate the disputes that have arisen with the respondent, M/s Srilakshmi Sai Auto Finance, a partnership concern of respondent Nos.2 and 3, inter alia, engaged in the business of fnancing and providing infrastructure expertise for soliciting customers for vehicle loans.
M.M.Salgaonkar
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2. The application seek appointment of an Arbitrator in terms of clause 24 of the Revenue Sharing Agreements (RSA) dated 04/02/2014, 06/08/2015 and 30/08/2016 and clause 18 of the Revolving Trade Finance dated 13/08/2015, entered between the applicant and the respondents, so as to arbitrate the disputes that have arisen between them, out of the said agreements.
3. Heard the learned counsel Ms.Savita Nangare for the applicant and Mr.Anoop Patil, the learned counsel for respondent Nos.1 to 3.
The respondents vehemently opposed the application, by raising the issue about it's maintainability, which I shall set out after some basic facts giving rise to the objections are narrated.
The applicant, entered a Revenue Sharing Agreement with the respondents on 04/02/2014, it being the frst revenue sharing party referred to as "Fortune", whereas the respondent was referred to as "RSP", a partnership frm on the other part. 'Fortune' intended to appoint 'RSP' for marketing it's various fnancial products and schemes introduced from time to time and sourcing business in respect of asset fnancing activities under the revenue sharing arrangement. The agreement clearly stipulated that both the parties may carry on the said fnancial business on a non-exclusive basis either on their own, or with another RSP and at such locations, as they may mutually agree from time to time on revenue sharing arrangement.
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The arrangement entered amongst themselves clearly stipulated that it shall not amount to a partnership/ association of persons and unless both the parties concur, the sanction of loan and disbursement shall not be undertaken.
The arrangement so worked, was to remain in force for duration of one year, unless terminated by 'Fortune' in the manner provided under the agreement. The option was also left to the other party to renew or extend the duration of the agreement, on such terms and conditions as mutually agreed upon. It was also permissible to carry on the business at other locations and centers, which could be added by mutual consent. The obligations to be discharged by the respective parties alongwith the restrictions imposed were stipulated in the agreement and the formula of revenue sharing and payment was provided in Annexure I, appended thereto.
An event of default contemplated that any breach or default by 'RSP' or it's employees, which would cause irreparable loss and/or damage to 'Fortune' and upon that happening of any one or more events stipulated would constitute a default. A clause for termination was also comprised in the agreement, where it was permissible for 'Fortune' to terminate the agreement by giving 7 days notice to 'RSP' and even it was competent for 'RSP' to terminate the agreement by giving two month's written notice and upon termination, all the rights were to cease, unless an exception is carved out.
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4. The agreement so entered, was agreed to be the entire, exclusive and complete understanding between the parties with regard to the subject matter.
The very said agreement contained a clause for arbitration and jurisdiction, which read thus :-
"24. ARBITRATION Any and all disputes arising out of or in connection with this agreement or its performance shall be settled by arbitration by a single arbitrator to be appointed by Fortune. The arbitration shall be held, in Mumbai, in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and the amendments carried out from time-to-time. The award given by such Arbitrator shall be fnal and binding on both the parties.
25. JURISDICTION Subject to the Arbitration clause contained herein, that courts in Mumbai alone shall have exclusive jurisdiction over any matter arising out of or concerning this Agreement."
The two other Revenue Sharing Agreement were entered between the parties on 06/08/2015 and 30/08/2016, having their duration as one year.
5. Another agreement for Revolving Trade Finance (FOR RSP) was also entered between the same parties and it set out in it's recital that, the 'RSP' with a view to promote its sale of vehicle(s) had entered into an arrangement with 'Fortune', under which the 'RSP' would refer to 'Fortune', the prospective customers who would like to avail fnance for the purchase of such assets from 'Fortune' and 'Fortune' agreed to consider such request for fnance, subject to its terms and conditions for acceptance of parties for extending fnance, as it deemed ft.
M.M.Salgaonkar
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Upon receipt of the Trade Advance(s) from 'Fortune', the 'RSP' agreed to deliver/book vehicle(s) from time to time, to/of customer(s) as per authorization issued by 'Fortune' in writing.
The agreement "Revolving Trade Finance", therefore, recorded that 'Fortune' agreed to sanction a maximum revolving trade fnance of Rs.50,00,000/- to 'RSP' under the agreement and 'RSP' agreed that the same would be utilised for purchase of vehicles.
This arrangement clearly indicate that the trade fnance once disbursed and availed by 'RSP' as revolving trade advance, can be re-borrowed by the 'RSP' only at the sole discretion of the Lender.
The repayment was guaranteed by a guarantor, who provided personal guarantee by way of collateral security for trade fnance and for the due performance of the various terms and conditions listed in the agreement.
Even this agreement provide for resolution of disputes arising out of, relating to or touching of the agreement, whether during its subsistence or at any time thereafter, to be settled by arbitration through a sole Arbitrator, to be nominated by 'Fortune'. Respondent No.4 stood as a guarantor for the said agreement.
In furtherance of the said agreement, the trade advance facility of Rs.50,00,000/- was awarded and the respondents delivered to the applicant, cheque(s) to discharge the pecuniary obligations.
M.M.Salgaonkar
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6. In the wake of the persistent breach and defaults in repayment of the principal and payment of interest and other charges in respect of the facility of Revolving Trade Advance to which respondent No.4 stood as a guarantor, the applicant addressed a notice on 18/03/2020 informing him that total outstanding of Rs.13,27,072/- is due and payable by the 'RSP' and the liability of the guarantor is coextensive with it and if the guarantor fails to make the payment, the necessary steps would be taken against the guarantor as well as 'RSP'.
A response to the said notice projected a defence that the cheques were presented without knowledge and prior instruction and, therefore, action under the Negotiable Instruments Act is not maintainable.
7. For resolving the dispute arising out of the two agreements, name of an Arbitrator within the territory of Andhra Pradesh was suggested, by projecting that though the jurisdiction as per the agreement, was vested in the court at Mumbai, the same is not valid as per law, since the entire transaction, documentation, business etc. was carried out at Nellore, Andhra Pradesh. The request was, therefore, made to fnalize the account with the competent Arbitrator, who was named, failing which it was indicated that the jurisdiction of High Court of Andhra Pradesh at Amravati would be invoked.
There was exchange of communication between the parties and even the applicant invoked arbitration in the wake of clause 24 of the Revenue Sharing Agreements vide it's communication dated 28/06/2021 and while invoking the M.M.Salgaonkar ::: Uploaded on - 30/06/2023 ::: Downloaded on - 01/07/2023 05:00:15 ::: 7/14 CARAPL-2130-22.odt arbitration, a specifc averment was made to the following effect :-
"We refer to the Revenue Sharing Agreement dated February 04, 2014 and Revolving Trade Advance dated August 13, 2015, renewal agreements thereof and other deeds, writings and undertakings with Fortune Integrated Assets Finance Limited (hereinafter collectively referred to as "Agreements") entered and executed between Sri Lakshmi Sai Auto Finance, Nellore and Fortune Integrated Assets Finance Limited (the Company). The said Agreements provide for the rights and obligations of the Parties thereto via-a-vis the credit facilities extended by the Company to the borrowers/customers sourced by you based on said arrangement.
As per the said Agreements, you were required to perform certain duties and obligations in the form and manner provide therein. Further, you should have abstained from doing certain things which may be detrimental to the Company and which may affect business of the Company."
8. The Arbitrator appointed by the applicant made his disclosure in the background with the following assertion :-
"This is in pursuance to the reference made by M/s.Fortune Integrated Assets Finance Limited, vide its letter dated 25.06.2021, through which requested me to act as a Sole Arbitrator for adjudication of dispute/claim/differences arising out of Revenue Sharing Agreement dated 04 th February, 2014 and Revolving Trade Advance dated 13 th August, 2015 and other deeds, writings and understandings executed between Claimants and Respondents."
9. The unilateral appointment of the Arbitrator was strongly objected by the respondent, by relying upon the decision in the case of Perkins Eastman Architects DPC & Ors. Vs. HSCC (India) Limited1, which constrained the sole Arbitrator, the retired District Judge, to pass the following order on 04/12/2021.
1 (2020) 20 SCC 760
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"That the advocate for the claimant has fled her say to the objections raised by the respondents and stated that, "the claimant accepting the position of law, agree to discontinue this arbitration proceedings and claimant shall take necessary steps in accordance with law to appoint a new arbitrator.
Heard advocate for the claimant as well as Ms.Sheetal Shethiya the authorised signatory of the claimant. In view of the submissions advanced on behalf of the claimant the order is passed on the memo of objection fled on behalf of the respondents today. In view of this the arbitral proceedings bearing no.CH-1/RSP/FIAFL/ARB/01/2021 pending before this arbitral tribunal is discontinued/terminated with no order as to costs."
10. On the Arbitral Tribunal terminating it's mandate, the applicant has approached this Court, seeking appointment of an Arbitrator to arbitrate the disputes, by exercising the power under Section 11 of the Arbitration and Conciliation Act, 1996 (for short, "The Act") The learned counsel Mr.Patil appearing for the respondent would contest the said application, by submitting that the application is not maintainable as it is not preceded by a notice invoking arbitration, which is a requirement under Section 21 of the Act and the second point, which he would press into service for rejection of the application is that the invocation of arbitration by the applicant itself was defective, as it did not make reference to all the agreements reached between the parties and, as such, since the invocation itself was not in terms of Section 21, the Arbitrator could not be appointed.
M.M.Salgaonkar
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11. While dealing with the frst argument, it is worth to note that Section 21 of the Act provide for commencement of arbitral proceedings, which read thus :-
"21. Commencement of arbitral proceedings.- Unless otherwise agreed by the parties, the arbitral proceedings in respect of a peculiar dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent."
12. The term 'arbitration' defned in Section 2(a) of the Act is to mean any arbitration whether or not administered by permanent arbitral institution. The Arbitration and Conciliation Act set out the arbitral procedure, which is fair, effcient and capable of meeting the ends of specifc arbitration. The Act provide for various aspects of arbitration, including composition of the Arbitral Tribunal, it's jurisdiction and the procedure, which the Tribunal would adopt.
The emphasis of the distinct provision contained in the Act is on the process of "arbitration" and Section 21 prescribe that the arbitral proceedings, in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent, unless it is otherwise agreed by the parties.
Section 21, which contemplates invocation of arbitration clearly indicate the point of time, when the arbitral proceedings commenced and it is that date on which a request for the dispute to be referred for arbitration is received by the respondent.
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13. A meaningful reading of Section 21 would indicate the initiating point of the process of arbitration. An arbitration agreement entered between the parties in the manner contemplated under Section 7 is an agreement, which comply with the requirement of the said provision and is entered into with the consent of the parties. Once such arbitration agreement is entered into, it may be invoked by any of the parties unilaterally and if one of the parties refuse to abide by the arbitration agreement, the other party is entitled to invoke or enforce the same in the manner prescribed in the statute.
Once the arbitration process is triggered, in the manner prescribed under Section 21, it may be undertaken by one Arbitrator or in special circumstances, by an Arbitrator, who is substituted by any Arbitrator for any of the reason permitted in the Act. Even when the Arbitrator is substituted, for any reason whatsoever, the mandate of the Arbitral Tribunal would come to an end, but the arbitration process moves ahead, as the parties had desired that they would resolve their dispute through the process of arbitration. The Arbitrator is only a person, who would carry out the process of arbitration and despite the Arbitrator being terminated, or incurs a disqualifcation to act as an Arbitrator or even when his mandate is terminated for any reason, the process of arbitration still deserve to be continued and merely because the person carrying out the process is substituted would not bring an end to the arbitral process.
Therefore, what is triggered by Section 21 i.e. the commencement of arbitration process is, when one party request the dispute to be referred to arbitration and has M.M.Salgaonkar ::: Uploaded on - 30/06/2023 ::: Downloaded on - 01/07/2023 05:00:15 ::: 11/14 CARAPL-2130-22.odt indicated so to the other party, then the arbitration process is said to have commenced and merely because for some reason, if the Arbitrator is substituted, it cannot be argued that the arbitration will have to be invoked afresh, before a new Arbitrator take forward the arbitral process contemplated under the Act, for which the parties have consented to by an arbitration agreement or the arbitrator is appointed by the Court to arbitrate between them.
14. In the case in hand, though the Arbitrator has recused himself and terminated his mandate, since the respondents raised an objection about his unilateral appointment, the arbitration proceedings can only be terminated in the manner prescribed under Section 32 of the Act.
A thin line of distinction exist between the termination of the mandate of an Arbitrator and termination of the arbitral proceedings and the statute makes a clear distinction between the two, which in any case, must not be lost sight of.
When the Arbitrator, alleged to have been appointed unilaterally, terminated his mandate, the arbitral proceedings do not come to an end and what was triggered by invocation notice that the arbitration process must be taken forward and this do not warrant the invocation of arbitration afresh.
The frst argument advanced by Mr.Patil is, therefore, without any substance and deserve a rejection.
15. As far as the second objection raised, even the said argument does not hold any water, as the facts would clearly M.M.Salgaonkar ::: Uploaded on - 30/06/2023 ::: Downloaded on - 01/07/2023 05:00:15 ::: 12/14 CARAPL-2130-22.odt disclose that three distinct Revenue Sharing Agreements were entered into between the parties with one agreement for Revolving Trade Advance dated 10/08/2015 under which the respondents have agreed to re-fnance the trade fnance towards the vehicle loans to such customers, who were approved by the applicant and this agreement was to give effect to the Revenue Sharing Agreement and worth to note that even this agreement provided 'Arbitration' as a mode of dispute resolution.
When the applicant invoked arbitration vide it's communication dated 28/06/2021, it referred to the Revenue Sharing Agreement and the Revolving Trade Advance as well as the renewal agreements thereof and other deeds, writings and undertakings entered and executed with the respondents. In any case, the aforesaid agreements cumulatively provided for the rights and obligations of the parties there to, vis-a-vis credit facilities extended by the applicant company to the borrowers/customers sourced by the respondents on the basis of the said arrangement.
In the wake of clear use of the words referring to the Revenue Sharing Agreements as well as the Revolving Trade Advance in the invocation notice, it cannot be said to suffer from any vice of any incompleteness, as the invocation notice invoked the arbitration clause in the Revenue Sharing Agreement as well as Revolving Trade Advance.
As a consequence, both the objections raised by Mr.Patil are turned down.
M.M.Salgaonkar
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16. In the wake of the existence of an arbitration clause in the agreement entered between the parties and the arbitration having been invoked and, since, the Arbitrator appointed recused himself, a situation has come before this Court to exercise it's power under sub-section (6) of Section 11 of the Act to appoint the sole Arbitrator as prayed for. Hence, I deem it appropriate to pass the following order.
TERMS OF APPOINTMENT
(a) Appointment of Arbitrator :
Ms.Manjiri Shah, an Advocate of this Court, is hereby appointed as a Sole Arbitrator to decide the disputes and differences between the parties under the document referred to above.
(b) Communication to Arbitrator of this order :-
(i) A copy of this order will be communicated to the learned Sole Arbitrator by the Advocates for the applicant/ petitioner within one week from the date this order is uploaded.
(c) Disclosure : The learned Arbitrator, within a period of 15 days before entering the arbitration reference, shall forward a statement of disclosure as per the requirement of Section 11(8) read with Section 12(1) of the Arbitration and Conciliation Act, 1996, to the Prothonotary & Senior Master of this Court, to be placed on record of this application, with a copy to be forwarded to both the parties.
(d) Appearance before the Arbitrator :The parties shall appear before the Sole Arbitrator within a period of two weeks from today and the learned Arbitrator shall fx up a frst date of hearing in the week commencing from 17/07/2023. The Arbitral Tribunal shall give all further directions with reference to the arbitration and also as to how it is to proceed.
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(e) Contact and communication information of the parties : Contact and communication particulars are to be provided by both sides to the learned Sole Arbitrator. This information shall include a valid and functional E-mail address as well as mobile numbers of the parties, participating in the process as well as of the Advocates.
(f) Section 16 application : The respondents are at liberty to raise all questions of jurisdiction within the meaning of section 16 of the Arbitration Act. All contentions are left open.
(g) Fees : The sole Arbitrator shall be entitled to the fees prescribed under the Bombay High Court (Fee Payable to Arbitrators) Rules, 2018 and the arbitral costs and fees of the Arbitrator shall be borne by the parties in equal portion and shall be subject to the fnal Award that may be passed by the Tribunal.
(h) Venue and seat of Arbitration : Parties agree that the venue and seat of the arbitration will be in Mumbai.
(i) Procedure : These directions are not in derogation of the powers of the learned Sole Arbitrator to decide and frame all matters of procedure in arbitration.
17. All contentions of both the sides are left open, to be raised by the respective parties before the Arbitral Tribunal, in accordance with law.
18. Comm. Arbitration Application (L) No.2130 of 2022 stands disposed off.
( SMT. BHARATI DANGRE, J.) M.M.Salgaonkar ::: Uploaded on - 30/06/2023 ::: Downloaded on - 01/07/2023 05:00:15 :::