Rajasthan High Court - Jodhpur
U.N. Automobiles Pvt. Ltd. & Ors vs Bank Of Baroda on 19 November, 2015
Equivalent citations: AIR 2016 RAJASTHAN 41, ILR 2016 RAJ 48, (2016) 2 ARBILR 364, (2016) 4 BANKCAS 55
Author: P.K.Lohra
Bench: P.K.Lohra
1
IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
JODHPUR
:ORDER:
S.B.CIVIL WRIT PETITION NO.3328/2015
U.N. Automobiles Pvt. Ltd. & Ors.
Vs
Bank of Baroda
Date of Order :: 19th November 2015
PRESENT
HON'BLE MR.JUSTICE P.K.LOHRA
Mr.L.R.Mehta with Mr.Ramit Mehta for the petitioners
Mr.R.K.Salecha for the respondent-Bank
Reportable BY THE COURT:
Petitioners have filed this writ petition under Article 226 & 227 of the Constitution of India to assail the impugned order dated 29.01.2015 (Annex./18) passed by the Debts Recovery Appellate Tribunal, Delhi (for short 'the DRAT') and has further prayed for staying the proceedings in Original Application No.10/2014 pending before the Debts Recovery Tribunal, Jaipur (for short 'the DRT'). A further prayer is made for allowing application of the petitioners under Section 8 of the Arbitration and Conciliation Act, 1996 (for short 'the Act of 1996') with other ancillary reliefs.
The facts apposite for the purpose of this writ petition are that the respondent-Bank submitted an Original Application (for short 'the OA') before the DRT, Jaipur under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short 'the Act of 1993') seeking issuance of recovery certificate for the amount of Rs.56,44,88,716/- (Rupees fifty six crores forty four lacs eighty eight thousand and seven hundred sixteen only) as principal amount as outstanding on 20.11.2013 with interest, costs and 2 expenses thereon. That apart, following other reliefs were also prayed for:-
"ii) award interest pendentelite and future at rate of interest per annum with monthly rests on the Principal amount relating to the facilities stated hereunder in favour of the applicant-Bank against all the Defendant Nos.1 to 3 jointly and severally from 21.11.2013 till the date of actual and final realization besides all costs and expenses incurred/to be incurred:
Nature of Facility Total Amount payable Further interest to be as on 20.11.2013 (Rs.) paid on the respective balance outstanding stated under column (C) @ per annum stated hereunder to be calculated on monthly rest Corporate Loan I 14,68,21,300 15.75 Corporate Loan II 2,35,70,869 15.75 Cash Credit Account 30,17,91,516 (relating to Commercial Vehicle segment) 15.75 Cash Credit Account 9,23,05,031 (relating to Passenger Car segment) 15.75 Total 56,44,88,716
iii) without prejudice to the on going proceedings under SARFAESI Act, 2002 for enforcement of security interest in the assets particulars of which have been given in Schedule A to L hereto, to realise the dues as per the Certificate of Recovery, by sale of properties of Defendant No.1 to 3, the particulars of which have been stated in Schedule "A to L" annexed hereto.
iv) realize the dues as per Certificate of Recovery from the moveable assets of Defendant No.1 hypothecated to the applicant-Bank.
v) award costs of this application to the applicant Bank, and
vi) award such other and further relief/s, as may be deemed just and expedient in the facts and circumstances of the present case so as to give full relief to the applicant Bank."3
The OA preferred by the respondent-Bank was registered as OA No.10/2014. On receipt of the notices of aforesaid OA, the petitioners preferred an application dated 30.04.2014 under Section 8 of the Act of 1996 read with Section 22 of the Act of 1993 which was registered as IA No.70/2014. In the application, it is, inter alia, averred by the petitioners that hypothecation agreement dated 10.06.2010 stipulates reference of dispute arising under the agreement to the arbitration by virtue of clause 9.2 and 11.2 and such award and decision given shall be valid and binding on the parties. By romping in aforesaid clauses of hypothecation agreement, the petitioners sought dismissal of OA in view of Section 8 of the Act of 1996 and craved for referring the dispute to the arbitration. The respondent-Bank without filing reply to IA straight away argued it. The learned DRT by relying on clause 11.2 of hypothecation agreement dated 10.06.2010 and a Full Bench Judgment of Delhi High Court in HDFC Bank Ltd.Vs. Satpal Singh Bakshi (2013) ILR I Delhi 583 allowed IA No.70/2014 of the petitioners and dismissed the OA filed by the respondent-Bank by its order dated 16.05.2014.
Being aggrieved by the said order of DRT, respondent-Bank laid an appeal under Section 20 of the Act of 1993 before DRAT, Delhi. Before DRAT, it was urged on behalf of the Bank that relevant clause under the hypothecation agreement dated 10.06.2010 is unilateral in nature and, therefore, if both clauses of hypothecation agreement i.e. Clause 9.2 and 11.2 are harmoniously construed, then it can very well be inferred that Bank never intended to have disputes resolved through arbitration mechanism. Finding favour with the contention of the respondent-Bank, the DRAT, Delhi allowed 4 the appeal of the respondent-Bank by its order dated 29.01.2015 and quashed the order passed by the DRT, Jaipur. It is, in that background, the petitioners have approached this Court.
The petitioners have questioned the impugned order on numerous grounds by urging that clause 11.2 of the hypothecation agreement has not been properly construed by the DRAT. It is also submitted that there is a complete fallacy in the impugned order of DRAT that clause 11.2 of the hypothecation agreement is not an arbitration clause in abstract sense and it simply authorises the respondent-Bank to take recourse to arbitration and not the borrower. The petitioners have raised a specific plea that the Full Bench decision of Delhi High Court which was clinching the issue in their favour has been erroneously distinguished by DRAT so as to upset the order passed by DRT, Jaipur. In substance, the petitioners have harped on clause 9.2 and 11.2 of hypothecation agreement and submitted that when the dispute between the parties is arbitrable, the OA filed by the respondent-Bank merits rejection. The petitioners have also submitted as additional ground that the respondent-Bank has already initiated proceedings against the petitioners under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'the SARFAESI Act') by issuing notice under Section 13(2) and 13(4) of the Act against which a writ petition is pending before this Court, therefore, by virtue of Section 35 of SARFAESI Act, proceedings under the provisions of the Act of 1993 are not maintainable inasmuch as Section 35 of the SARFAESI Act envisages overriding effect of this Act vis-a-vis other legislations.
The respondent-Bank submitted its reply to the writ petition 5 wherein it is averred that hypothecation agreement was executed by the first petitioner-company under its common seal in the presence of Mr.Amit Prakash Gupta, the second petitioner in conformity with the resolution of Board of Directors dated 09.06.2010. In support thereof, resolution of Board of Directors of the Company is also placed on record as Annex.R/2. It is further submitted that second and third petitioners who have provided their personal guarantee to secure credit facility granted by the Bank, did not execute the hypothecation agreement and by both of them independent general form of guarantee was executed inter alia on 25.08.2011 for Rs.45.67 crores. In substance, the plea of the respondent-Bank is that second and third petitioners stood as guarantors for the credit facility availed by the first petitioner-company in personal capacity. To substantiate this assertion, the general form of guarantee dated 25.08.2011 is also placed on record as Annex.R/3. The respondent- Bank has also averred in the reply that contents of agreement relate to "hypothecation" charge over the current assets of the company is not executed by the second and third petitioners inasmuch as they had given their respective personal guarantee and also created a charge by way of equitable mortgage inter alia on the flats at Jaipur. A further plea is raised in the reply by the respondent-Bank that undeniably, equitable mortgage was created in respect of various immoveable properties by way of supplemental memorandum of title deeds dated 10.02.2012 giving reference to all these properties as Annex.R/4. The averments regarding pending writ petition before this Court bearing No.11538/2013, it is submitted by the respondent- Bank that the same has already been dismissed by the order dated 13.04.2015 and copy of the order is also placed on record. 6
Adverting to the merits of the case and the lis involved therein, it is submitted by the respondent-Bank that clause 9.2 and 11.2 in the hypothecation agreement nowhere envisage resolution of dispute by arbitration mechanism. As per the version of the respondent-Bank, these two clauses of hypothecation agreement are conferring certain privileges to the Bank, inter alia, with relation to controversy on arising out of hypothecation agreement to be referred to arbitration which was never invoked by the Bank and, therefore, petitioners as borrowers could not hold out a situation that controversy is to be decided by arbitration mechanism. While stoutly defending the impugned order passed by DRAT, the respondent-Bank has submitted that in the impugned order, clause 9.2 and 11.2 of the hypothecation agreement have been rightly construed by DRAT Delhi as the same cannot be said to be a bilateral agreement between the parties for having agreed to refer the dispute to the arbitration. It is also urged in the reply by the respondent-Bank that clauses in hypothecation agreement dated 10.06.2010 and power of attorney dated 10.02.2012 by no stretch of imagination be construed as arbitration agreement within the four corners of clause (h) of sub-section (2) of Section 7 of the Act of 1996. Joining issue with the petitioners on the Full Bench decision of Delhi High Court, the respondent-Bank has stated in the reply that DRAT has examined the verdict threadbare so as to distinguish its ratio decidendi in the backdrop of facts and circumstances of the instant case. Placing reliance on a decision of Hon'ble Apex Court in Booz Allen and Hamilton Inc. Vs. SBI Home Finance Ltd., AIR 2011 SC 2507, it is submitted by the respondent-Bank that Hon'ble Apex Court in the said verdict has specifically considered the effect of suit 7 to enforce mortgage and has observed that mortgage is a transfer of right in rem and thus certain types of disputes for which Courts/Tribunals are created are non arbitrable. The respondent- Bank has also pleaded that hypothecation agreement was executed by the company only whereas petitioner Nos.2 and 3 have inter alia created equitable mortgage in respect of various immoveable assets alongwith the petitioner company and, therefore, relief claimed in the OA relating to "adjudication of debt" as well as "mortgage of immoveable properties" without prejudice to the action of the respondent-Bank under SARFAESI Act cannot be linked with any clause relating to arbitrability of disputes and as such any attempt of the petitioners to co-relate these disputes as arbitrable is ex facie an ambitious plea which is abortive. In that background, while stoutly defending the impugned order of DRAT, the respondent-Bank has submitted that verdict is just and proper requiring no interference. In substance, it is submitted in the return that impugned order passed by DRAT is infallible which cannot be made subject matter of judicial review in exercise of writ jurisdiction of this Court.
After submission of reply to writ petition, petitioners have filed their rejoinder and reiterated all the facts averred in the writ petition. While asserting the fact that hypothecation agreement was executed on behalf of the petitioner-company by the second petitioner in the capacity of Director, it is also clarified that for securing loan from the Bank, asset of the petitioners was kept as mortgage as the same was belonging to the petitioners. Referring the relevant clauses of the hypothecatio n agreement, it is submitted by the petitioners that it is clear and unequivocal so as to construe the same as arbitration clause within the four corners of Section 2(h) read with Section 7 of 8 the Act of 1996. An attempt is also made by the petitioners to inter- link the proceedings initiated by the respondent-Bank under the SARFAESI Act with the lis involved in the present petition. Attacking the action of the respondent in declaring the account of the petitioners as NPA, it is submitted by the petitioners that the same is in contravention of RBI Guidelines. As regards dismissal of S.B.Civil Writ Petition No.11538/2013, the petitioners have submitted that said matter is still sub-judice inasmuch as the appeal filed by the petitioners before the Division Bench of this Court is pending consideration. Placing heavy reliance on clause 9.2 and 11.2 of the hypothecation agreement, the petitioners have asserted with full emphasis that a plain reading of these clauses clearly and unequivocally reveal that these clauses have not conferred exclusive privilege on the Bank to refer the dispute for arbitration and contrary to it, its a bilateral contract and, therefore, the same is an arbitration clause and rightly construed so by the Full Bench of Delhi High Court.
Mr.L.R.Mehta assisted by Mr.Ramit Mehta, learned counsel for the petitioners submits that learned DRAT in its impugned order has misconstrued clause 9.2 and 11.2 of hypothecation agreement and, therefore, the impugned order cannot be sustained. Learned counsel Mr.Mehta would contend that hypothecation agreement is a bilateral instrument and, therefore, it is beyond comprehension of prudency that any clause therein can be construed as an exclusive privilege of the Bank without there being any corresponding obligation. Elaborating his submission, Mr.Mehta has urged that when the agreement is entered into between two parties, obviously it is a bilateral agreement/contract wherein both the parties have equal 9 rights and corresponding duties. Learned counsel Mr.Mehta has strenuously urged that while construing the terms of a bilateral agreement, it is unthinkable that some of its clauses are to be construed as bilateral and others as unilateral so as to confer privilege to the Bank without any right of the petitioners. It is further submitted by Mr.Mehta that hypothecation agreement is to be read as a whole and it is not desirable to read some of its clauses in isolation to the other part of the agreement inasmuch as the same would be in clear negation of construction of an instrument in legal parlance. Romping in principle of "Consensus ad idem", learned counsel for the petitioners would contend that said principle means that both the parties shall have the meeting of minds at the same thing and most importantly in the same sense. Thus, according to the learned counsel, use of the terms "referred to arbitration" pre- supposes that the Bank shall refer the dispute, if any, to arbitration to settle the same amicably. Mr.Mehta while invoking the doctrine of "Promissory estoppel" submits that the very recital of "referred to arbitration" in the hypothecation agreement can be construed as an unequivocal promise by the Bank and, accordingly, the petitioners have signed on the dotted lines of the printed format of the agreement and, therefore, now the respondent-Bank cannot be permitted to resile from its promise and it is estopped from now urging that "referring the dispute for arbitration" is the exclusive privilege of the Bank and not an obligation. Learned counsel has also made an attempt to challenge the stand of the Bank that these clauses are unilateral and within the exclusive privilege of the Bank on the anvil of doctrine of "unconscionablity". Lastly, learned counsel submits that impugned order passed by learned DRAT is 10 contrary to the basic tenets of law and, therefore, cannot be sustained. In support of his contention, learned counsel has placed reliance on following legal precedents:-
1. HDFC Bank Ltd. Vs. Satpal Singh Bakshi, (2013) ILR I Delhi 583
2. Shin Satellite Public Co. Ltd. Vs. Jain Studios Ltd., (2006) 2 SCC 628
3. Enercon (India) Limited & Ors. Vs. Enercon Gmbh & Anr., (2014) 5 SCC 1
4. Nandan Biomatrix Limited Vs. D 1 Oils Limited, (2009) 4 SCC 495
5. Visa International Limited Vs. Continental Resources (USA) Limited, (2009) 2 SCC 55
6. Dharma Prathishthanam Vs. Madhok Construction (P) Ltd., (2005) 9 SCC 686
7. Powertech World Wide Limited Vs. Delvin International General Trading LLC, (2012) 1 SCC 361
8. M/s. KSS KSSIIPL Consortium Through its Constituted Attorney Vs. M/s. Gail (India) Ltd., AIR 2015 SC 2456 In HDFC Bank Ltd. (supra), Full Bench of Delhi High Court examined the relevant clause 14.7 of the loan agreement on the touchstone of Section 8 of the Act of 1996. The Court upheld the order passed by DRAT whereby it has held that Bank's OA under the Act of 1993 is not maintainable while discussing Section 18 of the Act of 1993 which creates bar on jurisdiction of any court or other authority in relation to matters specified in Section 17. The Full Bench after discussing the aims and objects of the Act of 1996 opined in clear and unequivocal terms that matters which come 11 within the scope and jurisdiction of the DRT are arbitrable. The Full Bench has taken note of clause 14.7 of the loan agreement without reciting the complete text of the clause in the following words:-
"Clause 14.7 of the loan agreement provided for adjudication of disputes through arbitration by a sole arbitrator and, therefore, the respondents prayed for stay of proceedings of OA"
The Full Bench finally held,-
"13. Merely because there were huge NPAs and lot of monies belonging to the banks and financial institutions was stuck up and the legislature in its wisdom decided to create a special forum to have expeditious disposal of these cases would not mean that decisions rendered by Debts Recovery Tribunal come in the realm of 'right in rem'. At the same time, we find from the judgment in Booz Allen and Hamilton Inc. (supra) that certain kinds of disputes for which tribunals are created are held to be non-arbitrable. Examples are Rent Control Tribunal under the Rent Control Act and Labour Court/Industrial Tribunal under the Industrial Disputes Act, 1947. Obviously, question that would immediately strike is as to what would be the yardstick to determine some kind of disputes to be decided by the tribunals are non-arbitrable whereas some other disputes become arbitrable. According to us, cases where a particular enactment creates special rights and obligations and gives special powers to the tribunals which are not with the civil courts, those disputes would be non-arbitrable. It is a matter of common knowledge that Rent Control Act grants statutory protection to the tenants. Wherever provisions of Rent Control Act are applicable, it overrides the contract entered into between the parties. It is the rights created under the Act which prevail and those rights are not enforceable through civil courts but only through the tribunals which is given special jurisdiction not available with the civil courts. Likewise, Industrial Disputes Act, 1947 creates special rights in favour of the workman or employers and gives special powers to the industrial adjudicators/tribunals to even create rights which powers are not available to civil courts. Obviously such disputes cannot be decided by means of arbitral tribunals which are substitute of civil courts. On the other hand, in so far as tribunal like Debts Recovery Tribunal is concerned, it is simply a replacement of civil court. There are no special rights created in favour of the banks or financial institutions. There are no special powers given to the Debts Recovery Tribunal except that the procedure for deciding the disputes is little different from that of CPC applicable to civil courts. Otherwise, the Debt Recovery Tribunal is supposed to apply the same law as applied by the civil courts in deciding the dispute coming before it and is enforcing contractual rights of the Banks. It is, therefore, only a shift of forum from civil court to the tribunal for speedy disposal. Therefore, applying the principle contained in Booz Allen and Hamilton Inc. (supra), we are of the view that the matters which come 12 within the scope and jurisdiction of Debt Recovery Tribunal are arbitrable.
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"15. Another significant fact which has to be highlighted is that the bank entered into agreement with the respondent herein on its own standard form formats. The terms and conditions of the loan were set out and decided by the bank.
The respondent signed on dotted lines. In this scenario, when it was the proposal of the bank to have an arbitration clause to which the respondent had agreed, bank cannot now be permitted to say that this arbitration clause is of no consequence. Accepting the contention of bank would mean that the arbitration clause is rendered nugatory. It defeats the very effect of the said arbitration clause which was foisted by the bank itself upon the respondent, though in law, it becomes mutually acceptable between the parties.
16. Matter can be looked into form another angle as well. Had the bank invoked the arbitration on the basis of aforesaid clause containing arbitration agreement between the parties and referred the matter to the Arbitral Tribunal, was it permissible for the respondent to take an objection to the maintainability of those arbitration proceedings? Answer would be an emphatic No. When we find that answer is in the negative, the Court cannot permit a situation where such an arbitration agreement becomes one sided agreement, namely, to be invoked by the bank alone at its discretion without giving any corresponding right to the respondent to have the benefit thereof. For all the aforesaid reasons, we find that orders of authorities below are without blemish. Finding no merit in this writ petition, the same is dismissed. However, since nobody had appeared on behalf of the respondent, we are not imposing any costs."
In Shin Satellite Public Co. Ltd. (supra), Hon'ble Apex Court while dealing with an arbitration petition in sub-section (6) of Section 11 of the Act of 1996 held,-
"15. It is no doubt true that a court of law will read the agreement as it is and cannot rewrite nor create a new one. It is also true that the contract must be read as a whole and it is not open to dissect it by taking out a part treating it to be contrary to law and by ordering enforcement of the rest if otherwise it is not permissible. But it is well-settled that if the contract is in several parts, some of which are legal and enforceable and some are unenforceable, lawful parts can be enforced provided they are severable."
In Enercon (India) Limited (supra), while discussing the concept of separability of arbitration clause/agreement from the underlying contract held,-
13
"83. The concept of separability of the arbitration clause/agreement from the underlying contract is a necessity to ensure that the intention of the parties to resolve the disputes by arbitration does not evaporate into thin air with every challenge to the legality, validity, finality or breach of the underlying contract. The Indian Arbitration Act, 1996, as noticed above, under Section 16 accepts the concept that the main contract and the arbitration agreement form two independent contracts. Commercial rights and obligations are contained in the underlying, substantive, or the main contract. It is followed by a second contract, which expresses the agreement and the intention of the parties to resolve the disputes relating to the underlying contract through arbitration. A remedy is elected by parties outside the normal civil court remedy. It is true that support of the national courts would be required to ensure the success of arbitration, but this would not detract from the legitimacy or independence of the collateral arbitration agreement, even if it is contained in a contract, which is claimed to be void or voidable or unconcluded by one of the parties.
84. The scope and ambit of provision contained in Section 16 of the Indian Contract Act has been clearly explained in Reva Electric Car, wherein it was inter alia observed as follows: (SCC p.107, para 54) "54. Under Section 16(1), the legislature makes it clear that while considering any objection with respect to the existence or validity of the arbitration agreement, the arbitration clause which formed part of the contract, has to be treated as an agreement independent of the other terms of the contract. To ensure that there is no misunderstanding, Section 16(1)
(b) further provides that even if the Arbitral Tribunal concludes that the contract is null and void, it should not result, as a matter of law, in an automatic invalidation of the arbitration clause. Section 16(1)(a)presumes the existence of a valid arbitration clause and mandates the same to be treated as an agreement independent of the other terms of the contract. By virtue of Section 16(1)(b), it continues to be enforceable notwithstanding a declaration of the contract being null and void. In view of the provisions contained in Section 16(1) of the Arbitration and Conciliation Act, 1996, it would not be possible to accept the submission of Ms Ahmadi that with the termination of the MoU on 31-12-2007, the arbitration clause would also cease to exist."
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"88. In our opinion, the courts have to adopt a pragmatic approach and not a pedantic or technical approach while interpreting or construing an arbitration agreement or arbitration clause. Therefore, when faced with a seemingly unworkable arbitration clause, it would be the duty of the court to make the same workable within the permissible limits of the law, without stretching it beyond the boundaries of recognition. In other words, a common sense approach has to be adopted to give effect to the intention of the parties to arbitrate. In such a case, the court ought to adopt the attitude of a reasonable business person, having business common sense as well as being equipped with the 14 knowledge that may be peculiar to the business venture.
The arbitration clause cannot be construed with a purely legalistic mindset, as if one is construing a provision in a statute. We may just add here the words of Lord Diplock in Antaios Compania Neviera S.A. v .Salen Rederierna A.B.- which are as follows: (AC.p.201E) "......if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense."
We entirely agree with the aforesaid observation." In Nandan Biomatrix Limited (supra), Hon'ble Apex Court has emphasised that Court is required to decide the arbitration clause by examining facts and circumstances of the case. The Court held,-
"30. The Court is required, therefore, to decide whether the existence of an agreement to refer the dispute to arbitration can be clearly ascertained in the facts and circumstances of the case. This, in turn, may depend upon the intention of the parties to be gathered from the correspondence exchanged between the parties, the agreement in question and the surrounding circumstances. What is required is to gather the intention of the parties as to whether they have agreed for resolution of the disputes through arbitration. What is required to be decided in an application under Section 11 of the 1996 Act is : whether there is an arbitration agreement as defined in the said Act."
In Visa International Limited (supra), Hon'ble Apex Court has laid down certain norms for construing the arbitration clause and also emphasised the factors to be considered in this behalf. The Court held,-
"25. The submission is unsustainable for more than one reason. No party can be allowed to take advantage of inartistic drafting of arbitration clause in any agreement as long as clear intention of parties to go for arbitration in case of any future disputes is evident from the agreement and material on record including surrounding circumstances."
In Dharma Prathishthanam (supra), Hon'ble Apex Court has dilated on choice of the arbitrator by observing as follows:-
"Clearly one party cannot force a choice of arbitrator upon the other party to which the latter does not consent. The only solution in such a case is to seek an appointment from the Court."15
In Powertech World Wide Limited (supra), Hon'ble Apex Court laid down parameters for construing a clause as an arbitration clause by laying emphasis that what are the relevant materials to be considered in this behalf. The Court held,-
"26....... If the clause is read by itself without reference to the correspondence between the parties and the attendant circumstances, may be the case would clearly fall within the judgment of this Court in Jagdish Chander. But once the correspondence between the parties and attendant circumstances are read conjointly with the petition of the petitioner and with particular reference to the purchase contract, it becomes evident that the parties had an agreement in writing and were ad idem in their intention to refer these matters to an arbitrator in accordance with the provisions of the Act."
In M/s. KSS KSSIIPL Consortium (supra), Hon'ble Apex Court while considering the application under Section 11(6) of the Act of 1996 considered the nature of dispute whether it is arbitrable or not and held,-
"12......The finality attached to such a decision cannot be an unilateral act beyond the pale of further scrutiny. Such a view would negate the arbitration clause in the agreement. Justifiability of such a decision though stated to be final, must, be subject to a process of enquiry/adjudication which the parties in the present case have agreed would be by way of arbitration. The objections raised by the respondent on the aforesaid score, therefore, does not commend to the Court for acceptance and is hereby rejected."
Per contra, Mr.R.K.Salecha, learned counsel for the respondent-Bank submits that a bare reading of clause 9.2 and 11.2 of the hypothecation agreement makes it abundantly clear that there is no arbitration agreement within the meaning of Section 7 of the Act of 1996. Mr.Salecha would submit that a plain reading of both these clauses and on their harmonious construction would clearly and unequivocally reveal that Bank in its discretion may exercise its privilege to resolve the dispute by referring to arbitration. Mr.Salecha further submits that there is no obligation as such for the 16 Bank to refer the dispute for arbitration and, therefore, the first petitioner-company on whose behalf its Director - second petitioner has signed it, cannot be allowed to disown the same or to contend for its interpretation otherwise. Learned counsel for the respondent- Bank would urge that hypothecation agreement is signed by the second petitioner on behalf of the company in terms of the resolution of Board of Directors whereas petitioner Nos.2 and 3 have not executed the hypothecation agreement but have executed general forms of guarantee providing their personal guarantee to secure credit facility granted by the Bank and, therefore, mortgage of the assets has created a right in rem for the debt within the meaning of Section 2(g) of the Act of 1993. Elaborating his submissions, learned counsel contends that the matter is non-arbitrable inasmuch as under Section 8 of the Act of 1996 there is no provision for splitting the cause of parties and referring the subject-matter of suit to the arbitrator. Learned counsel would contend that in the instant case for construing the arbitration agreement/clause, necessary ingredients are conspicuously missing inasmuch as "Consensus ad idem" to refer the matter to arbitration is no where traceable in both clauses namely 9.2 and 11.2 of the hypothecation agreement. Learned counsel has vehemently argued that Section 34 of the Act of 1993 makes it abundantly clear that provisions of this Act are having overriding effect stating therein that notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. Lastly, learned counsel has urged that judgment rendered by the Full Bench of Delhi High Court is clearly distinguishable inasmuch as the relevant clause in the loan 17 agreement of borrower with HDFC Bank was different and, therefore, learned DRAT has rightly distinguished the said decision while allowing the appeal of the respondent-Bank. Mr.Salecha, in support of his contention, has placed reliance on following decisions:-
(1) Booz allen and Hamilton Inc. vs. SBI Home Finance Ltd. & Ors., (2011) 5 SCC 532 (2) Jagdish Chander vs. Ramesh Chander & Ors., (2007) 5 SCC 719 (3) Sukanya Holdings (P) Ltd. Vs. Jayesh H.Pandya & Anr., (2003) 5 SCC 531 In Booz allen and Hamilton Inc. (supra), Hon'ble Apex Court while considering arbitrability of a dispute examined the provisions contained under Sections 8, 11, 16, 34(2)(b) and 48(2) of the Act of 1996. While examining the dispute relating to rights in rem, the Court emphasised that such disputes are required to be adjudicated by the courts and public tribunals being unsuited for arbitration. The Court held,-
"34. The term "arbitrability" has different meanings in different contexts.The three facets of arbitrability, relating to the jurisdiction of the Arbitral Tribunal, are as under :
(i) whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the Arbitral Tribunal) or whether they would exclusively fall within the domain of public fora (courts).
(ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the "excepted matters" excluded from the purview of the arbitration agreement.
(iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the Arbitral Tribunal, or whether they do not arise out of the statement of claim and the counter claim filed before the Arbitral Tribunal. A dispute, even if it is capable of being decided by arbitration and falling within the scope of arbitration agreement, will not be "arbitrable" if it is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such joint list of disputes, does not form part of the disputes raised in the pleadings before the Arbitral Tribunal.18
35. The Arbitral Tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy.
Certain other categories of cases, though not expressly reserved for adjudication by a public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.
36. The well recognized examples of non-arbitrable disputes are : (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters;(v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.
37. It may be noticed that the cases referred to above relate to actions in rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself. (Vide : Black's Law Dictionary).
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42. The distinction between disputes which are capable of being decided by arbitration, and those which are not, is brought out in three decisions of this Court. In Haryana Telecom Limited v. Sterlite Industries (India) Ltd. this Court held : (SCC pp,689-90, paras 4-5) 19 "4. Sub-section (1) of Section 8 provides that the judicial authority before whom an action is brought in a matter, will refer the parties to arbitration the said matter in accordance with the arbitration agreement. This, however, postulates, in our opinion, that what can be referred to the arbitrator is only that dispute or matter which the arbitrator is competent or empowered to decide.
5. The claim in a petition for winding up is not for money. The petition filed under the Companies Act would be to the effect, in a matter like this, that the company has become commercially insolvent and, therefore, should be wound up. The power to order winding up of a company is contained under the Companies Act and is conferred on the court. An arbitrator, notwithstanding any agreement between the parties, would have no jurisdiction to order winding up of a company. The matter which is pending before the High Court in which the application was filed by the petitioner herein was relating to winding up of the Company. That could obviously not be referred to arbitration and, therefore, the High Court, in our opinion was right in rejecting the application."
(emphasis supplied)
43. A different perspective on the issue is found in Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan where this Court considered whether an arbitrator has the power and jurisdiction to grant specific performance of contracts relating to immovable property. This Court held : (SCC p.668, para 34) "34.......We are of the view that the right to specific performance of an agreement of sale deals with contractual rights and it is certainly open to the parties to agree - with a view to shorten litigation in regular courts - to refer the issues relating to specific performance to arbitration. There is no prohibition in the Specific Relief Act, 1963 that issues relating to specific performance of contract relating to immovable property cannot be referred to arbitration. Nor is there such a prohibition contained in the Arbitration and Conciliation Act, 1996 as contrasted with Section 15 of the English Arbitration Act, 1950 or Section 48(5)(b) of the English Arbitration Act, 1996 which contained a prohibition relating to specific performance of contracts concerning immoveable property."
44. Approving the decision of the Calcutta High Court in Keventer Agro Ltd. v. Seegram Co. Ltd. this Court held that disputes relating to specific performance of a contract can be referred to arbitration and Section 34(2)(b)(i) will not be attracted. This Court held : (Meena Vijay Khetan case, SCC p.669, para 36) "36. Further, as pointed in the Calcutta case, merely because there is need for exercise of discretion in case of specific performance, it cannot be said that only the civil court can exercise such a discretion. In the above case, Ms Ruma Pal, J. observed:
20
'...merely because the sections of the Specific Relief Act confer discretion on courts to grant specific performance of a contract does not means that parties cannot agree that the discretion will be exercised by a forum of their choice. If the converse were true, then whenever a relief is dependent upon the exercise of discretion of a court by statute e.g. the grant of interest or costs, parties should be precluded from referring the dispute to arbitration.' "
This Court further clarified that while matters like criminal offences and matrimonial disputes may not be the subject- matter of resolution by arbitration, matters incidental thereto may be referred to arbitration : (Meena Vijay Khetan case, SCC p.669, para 35) "35......Reference is made there to certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, which cannot be referred to arbitration. It has, however, been held that if in respect of facts relating to a criminal matter, (say) physical injury, if there is a right to damages for personal injury, then such a dispute can be referred to arbitration (Keir v. Leeman). Similarly, it has been held that a husband and wife may, refer to arbitration the terms on which they shall separate, because they can make a valid agreement between themselves on that matter ...... ...."
48. The provisions of Transfer of Property Act read with Order 34 of the Code, relating to the procedure prescribed for adjudication of the mortgage suits, the rights of mortgagees and mortgagors, the parties to a mortgage suit, and the powers of a court adjudicating a mortgage suit, make it clear that such suits are intended to be decided by public fora (courts) and therefore, impliedly barred from being referred to or decided by private fora (Arbitral Tribunals). We may briefly refer to some of the provisions which lead us to such a conclusion.
48.1 Rule (1) of Order 34 provides that subject to the provisions of the Code, all persons having an interest either in the mortgage security or in the right of redemption shall have to be joined as parties to any suit relating to mortgage, whether they are parties to the mortgage or not. The object of this Rule is to avoid multiplicity of suits and enable all interested persons, to raise their defences or claims, so that they could also be taken note of, while dealing with the claim in the mortgage suit and passing a preliminary decree. A person who has an interest in the mortgage security or right or redemption can therefore make an application for being impleaded in a mortgage suit, and is entitled to be made a party. But if a mortgage suit is referred to arbitration, a person who is not a party to the arbitration agreement, but having an interest in the mortgaged property or right of redemption, can not get himself impleaded as a party to the arbitration proceedings, nor get his claim dealt with in the arbitration proceedings relating to a dispute between the parties to the arbitration, thereby defeating the scheme relating to mortgages in 21 the Transfer of Property Act and the Code. It will also lead to multiplicity of proceedings with likelihood of divergent results.
48.2 In passing a preliminary decree and final decree, the court adjudicates, adjusts and safeguards the interests not only of the mortgagor and mortgagee but also puisne/mesne mortgagees, persons entitled to equity of redemption, persons having an interest in the mortgaged property, auction-purchasers, persons in possession. An Arbitral Tribunal will not be able to do so.
48.3 The court can direct that an account be taken of what is due to the mortgagee and declare the amounts due and direct that if the mortgagor pays into court, the amount so found due, on or before such date as the court may fix (within six months from the date on which the court confirms the account taken or from the date on which the court declares the amount due), the petitioner shall deliver the documents and if necessary re-transfer the property to the defendant; and further direct that if the mortgagor defaults in payment of such dues, then the mortgagee will be entitled to final decree for sale of the property or part thereof and pay into court the sale proceeds, and to adjudge the subsequent costs, charges, expenses and interest and direct that the balance be paid to defendant/mortgagor or other persons entitled to receive the same. An Arbitral Tribunal will not be able to do so. 48.4 Where in a suit for sale (or in a suit for foreclosure in which sale is ordered), subsequent mortgagees or persons deriving title from, or subrogated to the rights of any such mortgagees are joined as parties, the court while making the preliminary decree for sale under Rule 4(1), could provide for adjudication of the respective rights and liabilities of the parties to the suit in a manner and form set forth in Form Nos. 9, 10, and 11 of Appendix `D' to the Code with such variations as the circumstances of the case may require. In a suit for foreclosure in the case of an anomalous mortgage, if the plaintiff succeeds, the court may, at the instance of any party to the suit or any other party interested in the mortgage security or the right of redemption, pass a like decree in lieu of a decree for foreclosure, on such terms as it thinks fit. But an Arbitral Tribunal will not be able to do.
48.5 The court has the power under Rule 4(2), on good cause being shown and upon terms to be fixed by it, from time to time, at any time before a final decree is passed, extend the time fixed for payment of the amount found or declared due or the amount adjudged due in respect of subsequent costs, changes, expenses and interest, upon such terms as it deems fit. The Arbitral Tribunal will have no such power.
49. A decree for sale of a mortgaged property as in the case of a decree for order of winding up, requires the court to protect the interests of persons other than the parties to the suit/petition and empowers the court to entertain and adjudicate upon rights and liabilities of third parties (other than those who are parties to the arbitration agreement). Therefore, a suit for sale, foreclosure or redemption of a mortgaged property, should only be tried by a public forum, 22 and not by an Arbitral Tribunal. Consequently, it follows that the court where the mortgage suit is pending, should not refer the parties to arbitration.
50. The appellant contended that the suit ultimately raises the following core issues, which can be decided by a private forum: (i) Whether there is a valid mortgage or charge in favour of SBI? (ii) What is the amount due to SBI? and (iii) Whether SBI could seek eviction of appellant from the flat, even if it is entitled to enforce the mortgage/charge? It was submitted that merely because mortgage suits involve passing of preliminary decrees and final decrees, they do not get excluded from arbitrable disputes. It is pointed out that the arbitral tribunals can also make interim awards deciding certain aspects of the disputes finally which can be equated to preliminary decrees granted by courts, and the final award made by the arbitrator, after detailed accounting etc. could be compared to the final decree passed by courts. It is therefore contended that there is no impediment for the parties to mortgage suits being referred to arbitration under Section 8 of the Act.
51. If the three issues referred by the appellant are the only disputes, it may be possible to refer them to arbitration. But a mortgage suit is not only about determination of the existence of the mortgage or determination of the amount due. It is about enforcement of the mortgage with reference to an immovable property and adjudicating upon the rights and obligations of several classes of persons (referred to in para 48.2 above), who have the right to participate in the proceedings relating to the enforcement of the mortgage, vis-a-vis the mortgagor and mortgagee. Even if some of the issues or questions in a mortgage suit (as pointed out by the appellant) are arbitrable or could be decided by a private forum, the issues in a mortgage suit cannot be divided."
In Jagdish Chander (supra), Hon'ble Apex Court examined the provisions of Section 7 of the Act of 1996 and laid down necessary principles to constitute an arbitration agreement/clause. The Court held,-
"8. This Court had occasion to refer to the attributes or essential elements of an arbitration agreement in K K Modi v. K N Modi, Bharat Bhushan Bansal v. U.P. Small Industries Corpn. Ltd. and Bihar State Mineral Development Corpn. v. Encon Builders (I)(P) Ltd. In State of Orissa v. Damodar Das this Court held that a clause in a contract can be construed as an "arbitration agreement" only if an agreement to refer disputes or differences to arbitration is expressly or impliedly spelt out from the clause. We may at this juncture set out the well-settled principles in regard to what constitutes an arbitration agreement :
(i) The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of the 23 agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for adjudication and an willingness to be bound by the decision of such tribunal on such disputes, it is arbitration agreement. While there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement.
(ii) Even if the words "arbitration" and "Arbitral Tribunal (or arbitrator)" are not used with reference to the process of settlement or with reference to the private tribunal which has to adjudicate upon the disputes, in a clause relating to settlement of disputes, it does not detract from the clause being an arbitration agreement if it has the attributes or elements of an arbitration agreement. They are : (a) The agreement should be in writing. (b) The parties should have agreed to refer any disputes (present or future) between them to the decision of a private tribunal. (c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case before it. (d) The parties should have agreed that the decision of the private tribunal in respect of the disputes will be binding on them.
(iii) Where the clause provides that in the event of disputes arising between the parties, the disputes shall be referred to arbitration, it is an arbitration agreement. Where there is a specific and direct expression of intent to have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to make it an arbitration agreement. But where the clause relating to settlement of disputes, contains words which specifically exclude any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement. For example, where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement.
(iv) But mere use of the word "arbitration" or "arbitrator" in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of words such as "parties can, if they so desire, refer their disputes to arbitration" or "in the event of any dispute, the parties may also agree to refer the same to arbitration" or "if any disputes arise between the parties, they should consider settlement by arbitration" in a clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement. Similarly, a clause which states that "if the parties so decide, the disputes shall be referred to arbitration" or "any disputes between parties, if they so 24 agree, shall be referred to arbitration" is not an arbitration agreement. Such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future."
In Sukanya Holdings (P) Ltd. (supra), Hon'ble Apex Court examined applicability of Section 8 of the Act of 1996. The Court held,-
"13. Secondly, there is no provision in the Act that when the subject-matter of the suit includes subject-matter of the arbitration agreement as well as other disputes, the matter is required to be referred to arbitration. There is also no provision for splitting the cause or parties and referring the subject-matter of the suit to the arbitrators."
"15. The relevant language used in Section 8 is: "in a matter which is the subject of an arbitration agreement".
The court is required to refer the parties to arbitration. Therefore, the suit should be in respect of "a matter" which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced - "as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section 8. The words "a matter" indicate that the entire subject-matter of the suit should be subject to arbitration agreement.
16. The next question which requires consideration is - even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act. In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action that is to say the subject-matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject- matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject-matter of an action brought before a judicial authority is not allowed.
17. Secondly, such bifurcation of suit in two parts, one to be decided by the Arbitral Tribunal and the other to be decided by the civil court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is 25 possibility of conflicting judgments and orders by two different forums."
I have heard learned counsel for the parties and perused the materials available on record.
The first and foremost issue which requires judicial scrutiny in the instant petition is interpretation and construction of clause 9.2 and 11.2 of the hypothecation agreement. The parties to the litigation have their own perception about these clauses inasmuch as the petitioners are insistent that a cumulative reading of these two clauses constitutes an arbitration agreement between the parties whereas the respondent-Bank is harping that referring the matter for arbitration is prerogative of the Bank and the phraseology employed in both these clauses do not constitute an arbitration agreement within the meaning of Section 7 of the Act of 1996. This contention of the respondent-Bank is also fortified by the impugned order wherein learned DRAT has also declined to accept the contention of the petitioners for construing it as an arbitration agreement. As both the parties are at divergence and have addressed on the issue with full vehemence to bring home their respective contentions, it is imperative for this Court to examine the recitals of both these clauses of hypothecation agreement. Clause 9.2 and 11.2 of the hypothecation agreement read as under:-
"9.2 The Bank shall be entitled to adjust, settle and compromise in any manner whatsoever, including by reference to arbitration, at the Borrower's cost any dispute arising under or in connection with any such policy of insurance and such adjustment, settlement, compromise and any award made or decision given in such arbitration or otherwise shall be valid and binding on the Borrower and the Bank shall also be entitled to all monies or payable under any such insurance or under any claim made thereunder and to issue a valid receipt thereof and that the amounts so received shall be credited to any of the banking facility account (s) namely the Cash Credit/Overdraft/Current or any 26 other account (s) of the Borrower and that the borrower will not raise any dispute that a larger sum might or ought to have been received or be entitled to raise any dispute for the balance in any of the said accounts after such credit provided that the Bank may at its own discretion waive any of the requirements as to insurance, to such extent and in such manner as it may deem fit."
11.2 The Company irrevocably appoints the Bank to be the Attorney of the Company and in the name and on behalf of the Company ought to execute and to do any assurances and things which the company ought to execute and do under the covenants herein contained and generally to use the name and seal of the Company in exercise of all or any of the powers hereby conferred on the Bank or any Receiver appointed by the Bank. The Bank shall also be at liberty to enforce, realise, recovery, settle, compromise, refer to arbitration and for the purpose deal in any manner with any rights or claims which may be set up in respect of the Hypotehcated Premises, to complete any engagements and carry on the business of the Borrower through agents, managers nominees or otherwise without being bound to exercise these powers. The Bank shall not be liable in the event of the exercise of any of the aforesaid powers for any involuntary loss which may occur in or arise from such exercise and such exercise shall be without prejudice to any other rights and remedies and notwithstanding any pending suit or other proceedings relating to the Hypothecated Premises. Notwithstanding that there may be any pending suit or other proceedings, the Borrower hereby undertakes to transfer and delivery to the Bank all relative contracts, securities, bazaar chits, bills, notes, hundies and documents. The borrower shall accepts the Bank's accounts of sales and realisation as conclusive and shall forthwith pay to the Bank on demand any shortfall or deficiency thereby shown. And if the net sum realised by such sales is not sufficient to pay the amounts secured, the Bank shall be at liberty to apply any other money or monies in the hands of the Bank standing to the credit of or belonging to the Borrower in or towards the payment of the balance due to it, AND in the event of there being still some deficiency, the Borrower shall forthwith pay/make good such deficiency provided that nothing herein contained shall in any manner prejudice or affect the rights and remedies of the Bank against the Borrower."
A bare reading of clause 9.2 makes it amply clear that entitlement to adjust, settle and compromise in any manner whatsoever by reference to arbitration is unilateral and there is no whisper that a borrower can also stake its claim for referring the matter to arbitration. Similarly, clause 11.2 is all the more clear with the recitals "the Bank shall also be at liberty to enforce, realise, recovery, settle, compromise, refer to arbitration." 27
The word "liberty" pre-supposes that it is exclusive privilege of the Bank and there is no corresponding right of the borrower to refer the matter for arbitration. The word "liberty" has a very extensive meaning but in the instant case, its meaning is required to be derived in the backdrop of instrument of hypothecation agreement. Therefore, employing the word "liberty" in the hypothecation agreement means-
"freedom from control, interference, obligation, restriction, hampering conditions etc.; power or right of doing, thinking, speaking, etc. according to choice."
If these clauses are tested on the touchstone of Section 7 of the Act of 1996 then it becomes imperative for this Court to consider the intention of the parties. Mere use of the word "arbitration" or "arbitrator" in a clause will not make it an arbitration agreement which requires or contemplates a further or fresh consent of the parties for reference to arbitration. If these two clauses are examined on the touchstone of principles laid down by Hon'ble Apex Court in Jagdish Chandra (supra) so as to constitute an arbitration agreement, I am afraid, these clauses are falling short of the requirement to constitute an arbitration agreement and as such the findings recorded by learned DRAT in this behalf in the impugned order cannot be faulted so as to make out a case for interference in exercise of certiorari jurisdiction of this Court.
It is trite that certiorari jurisdiction of this Court is to be exercised if there is an error apparent on the face of record or a serious jurisdictional error committed by lower court/tribunal. The other ground available for invoking certiorari jurisdiction is violation of principles of natural justice which is obviously of no significance in the backdrop of facts and circumstances of the case. 28
The petitioners' persistence for invoking "Consensus ad idem"
to refer the disputes to arbitration, in my considered opinion, is not discernible from the aforesaid two clauses. "Consensus ad idem"
means- A meeting of minds; one of the essential requisites of the formation of a valid contract. Its plain meaning is that agreement by two or more persons upon the same thing in the same sense; the common consent necessary for a binding contract. Therefore, even if these two clauses are examined with a myopic vision, it is rather difficult to fathom that there is element of "Consensus ad idem" in these two clauses so as to bring it an arbitration agreement within the four corners of Section 7 of the Act of 1996.
The Full Bench judgment of Delhi High Court in HDFC Bank Ltd. (supra) on which petitioners have placed heavy reliance is considered threadbare by the DRAT and rightly distinguished in the factual background of the instant case. The DRAT has also examined one important aspect of the matter that generally and traditionally all disputes relating to rights in personam are amenable to arbitration and all other disputes relating to right in rem require adjudication by courts and public tribunals. These observations of the learned DRAT were in relation to general form of guarantee (Annex.4) executed by the second and third petitioners mortgaging five immoveable properties. The legal position is no more res integra that mortgage is a right in rem and not a right in personam, therefore, the ratio decidendi in Sukanya Holdings (P) Ltd. (supra) has been rightly applied by the learned DRAT by virtue of Section 8 of the Act of 1996. Further, the learned DRAT has also rightly placed reliance on the decision of Hon'ble Apex Court in Booz Allen and Hamilton Inc. (supra) and unhesistantly, I fully agree with the 29 view of the learned DRAT.
There is yet another aspect of the matter that Full Bench decision of Delhi High Court in HDFC Bank Ltd. (supra) is also otherwise factually distinguishable inasmuch as the relevant clause 14.7 of the loan agreement therein was couched with a clear and unambiguous language for adjudication of disputes through arbitration by a sole arbitrator. This sort of language is not employed in clause 9.2 and 11.2 of the hypothecation agreement and, therefore, this verdict cannot come to the rescue of the petitioners to make out a case for interference with the impugned order.
The other legal precedents on which the petitioners have placed reliance are also examined by me threadbare but in the backdrop of the facts and circumstances of the instant case and absence of "Consensus ad idem" in aforesaid two clauses of hypothecation agreement, all these judgments cannot render any assistance to them. Moreover, the vital feature of the case that splitting of cause is not envisaged under Section 8 so as to refer part of dispute for arbitration and part of dispute to be adjudicated by DRT as it would increase costs of litigation and harassment to the parties and on occasions, there are possibilities of conflicting judgments and orders by two different forums has been rightly appreciated by the learned DRAT. The non-arbitrability of the dispute has thus rightly persuaded the learned DRAT to invoke Section 34 of the Act of 1993 which gives overriding effect to this Act on any other law for the time being in force or any instrument having effect by virtue of any law other than the said Act. In the backdrop of facts and circumstances of the instant case, I fully agree with the said view of learned DRAT.
30
Although the issue concerning initiation of proceedings by the respondent-Bank under the SARFAESI Act is out of context and having no ramification on the proceedings in the present petition but the petitioners have made an attempt to impress upon this Court that it has adverse effect on the proceedings initiated by the respondent- Bank under the Act of 1993. In the considered opinion of this court, this issue is no more res integra and as such there is no substance in this contention. Hon'ble Apex Court in the case of Transcore Vs. Union of India & Anr., (2008) 1 SCC 125 has held that conceptually, there is no inherent or implied inconsistency between the two remedies under both the Acts. Thus two enactments provide for cumulative remedies to the secured creditors. By removing all fetters on the rights of secured creditor, he is given a right to choose one or more of the cumulative remedies. The Court made following observations in this behalf:-
"63. Therefore, when Section 13(4) talks about taking possession of the secured assets or management of the business of the borrower, it is because a right is created by the borrower in favour of the bank/ FI when he takes a loan secured by pledge, hypothecation, mortgage or charge. For example, when a company takes a loan and pledges its financial asset, it is the duty of that company to see that the margin between what the company borrows and the extent to which the loan is covered by the value of the financial asset hypothecated is retained. If the borrower company does not repay, becomes a defaulter and does not keep up the value of the financial asset which depletes then the borrower fails in its obligation which results in a mis- match between the asset and the liability in the books of the bank/ FI. Therefore, Sections 5 and 9 talk of acquisition of the secured interest so that the balance sheet of the bank/ FI remains clean. Same applies to immovable property charged or mortgaged to the bank/ FI. These are some of the factors which the authorised officer of the bank/ FI has to keep in mind when he gives notice under Section 13(2) of the NPA Act. Hence, equity exists in the bank/FI and not in the borrower. Therefore, apart from obligation to repay, the borrower undertakes to keep the margin and the value of the securities hypothecated so that there is no mis-match between the asset-liability in the books of the bank/FI. This obligation is different and distinct from the obligation to repay. It is the former obligation of the borrower which attracts the provisions of NPA Act which seeks to enforce it 31 by measures mentioned in Section 13(4) of NPA Act, which measures are not contemplated by DRT Act and, therefore, it is wrong to say that the two Acts provide parallel remedies as held by the judgment of the High Court in Kalyani Sales Co. As stated, the remedy under DRT Act falls short as compared to NPA Act which refers to acquisition and assignment of the receivables to the asset reconstruction company and which authorizes banks/ FIs. to take possession or to take over management which is not there in the DRT Act. It is for this reason that NPA Act is treated as an additional remedy (Section 37), which is not inconsistent with the DRT Act.
64. In the light of the above discussion, we now examine the doctrine of election. There are three elements of election, namely, existence of two or more remedies; inconsistencies between such remedies and a choice of one of them. If any one of the three elements is not there, the doctrine will not apply. According to American Jurisprudence, 2d, Vol. 25, p. 652, if in truth there is only one remedy, then the doctrine of election does not apply. In the present case, as stated above, the NPA Act is an additional remedy to the DRT Act. Together they constitute one remedy and, therefore, the doctrine of election does not apply. Even according to Snell's Principles of Equity (31st Edn., p.119), the doctrine of election of remedies is applicable only when there are two or more co-existent remedies available to the litigants at the time of election which are repugnant and inconsistent. In any event, there is no repugnancy nor inconsistency between the two remedies, therefore, the doctrine of election has no application."
Therefore, this contention of the petitioner is superfluous and merits rejection.
The petitioners have also made an attempt to invoke the doctrine of "Promissory estoppel" and doctrine of "unconscionablity". Although both these issues were not raised before the learned DRAT but considering the arguments of learned counsel for the petitioners, I propose to deal with these two aspects of the matter also.
At the outset, it may be observed that "Promissory estoppel"
and "Estoppel" by conduct are two distinct theories. The latter does not require a promise. That means, for invocation of doctrine of "Promissory estoppel" a promise is pre-requisite. The doctrine of "Promissory estoppel" is equitable in origin and nature and arose to provide a remedy through the enforcement of a gratuitous promise.32
In legal parlance, the term "Promissory estoppel" can be defined as follows:-
"When one party has, by his words or conduct made to the other a clear and unequivocal promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, the one who gave the promise or assurance cannot be afterwards be allowed to revert to their previous legal relations as if no such promise or assurance had been made by him, but he must accept their legal relations subject to the qualification which he himself has so introduced."
In view of the language employed in the aforesaid clauses of hypothecation agreement, it is not reasonably possible to infer that respondent-Bank by its words and conduct has made the petitioners a promise in clear and unequivocal terms or assurance to refer the dispute for arbitration. Therefore, the contention of the petitioners on the anvil of "Promissory estoppel" falls flat.
As regards, doctrine of "unconscionablity", suffice it to observe that plea of the petitioners appears to be quite alluring but not of substance. A contract can be categorised as unconscionable if it is unfair, unreasonable and opposed to the public policy. I am at loss to say that how and in what manner, the respondent-Bank has acted unfairly, unreasonably and de hors the public policy in keeping the privilege to refer the dispute for arbitration without making it bilateral. In totality, by keeping this option unilateral at its own discretion, the respondent-Bank, which is a financial institution, in my considered opinion, has not acted unreasonably, unfairly or against the public policy. A financial institution which is carrying on business of collecting, investing, lending funds is well within its right to carve out ways and means for settlement of commercial transactions with its borrowers. Assuming it without admitting the same that if there had 33 been no such clause in the hypothecation agreement, could such plea be raised by the petitioners to invoke the doctrine of "unconscionablity"? A prudent answer to the said query is - 'No'. Therefore, this ambitious plea of the petitioners to invoke doctrine of "unconscionablity" is bereft of any merit and, as such it is not tenable.
No other point is urged by the petitioners.
Thus, upon taking comprehensive view of the matter and examining thoroughly the impugned order, I am unable to find any manifest error in the impugned order which is apparent on the face of record requiring interference by exercising certiorari jurisdiction of this Court.
The upshot of above discussion is that I find no merit in this writ petition and the same is, therefore, dismissed.
Costs are made easy.
(P.K.LOHRA),J.
MK