Delhi High Court
Hdfc Bank Ltd. vs Satpal Singh Bakshi on 13 September, 2012
Author: Sanjay Kishan Kaul
Bench: Sanjay Kishan Kaul, Rajiv Shakdher
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment Reserved on: 23rd August, 2012
Judgment Pronounced on : 13.09.2012
+ WP(C) NO. 3238/2011
HDFC BANK LTD. ..... Petitioner
Through: Mr. Punit K. Bhalla, Ms. Chetna
Bhalla, Advocates
Versus
SATPAL SINGH BAKSHI ... Respondent
Through: Mr. Parag P. Tripathi, Amicus
Curiae with Mr. Anuj Bhandari,
Advocate
CORAM:
HON'BLE THE ACTING CHIEF JUSTICE
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON'BLE MR. JUSTICE RAJIV SHAKDHER
A.K. SIKRI (ACTING CHIEF JUSTICE):
This writ petition is filed by the HDFC Bank Limited (hereinafter
referred to as the bank) questioning the validity of orders dated 9 th March,
2011 passed in Appeal No.116/2011 by the Debt Recovery Appellate
Tribunal, Delhi (DRAT for short) which had confirmed the orders dated 8 th
October, 2010 passed by the Debt Recovery Tribunal - II (DRT-II for
short) in OA 178/2009. The bank had filed OA before the DRT for
recovery of the outstanding amount against the loan disbursed to the
respondent and in this OA, the respondent herein had filed application
WP(C) NO. 3238/2011 Page 1 of 24
under Section 8 of the Arbitration and Conciliation Act, 1996
("Arbitration Act") on the ground that Clause 14.7 of the loan agreement
provided for adjudication of disputes through arbitration by a sole arbitrator
and, therefore, the respondent prayed for stay of the proceedings of the OA.
This application was allowed by the Presiding Officer vide order dated 8 th
October, 2010 holding that once there was an arbitration agreement
between the parties, provisions of the Arbitration Act as contained in
Section 8 of the Arbitration Act would prevail over the Recovery of Debts
due to Banks and Financial Institutions Act, 1993 ("RDB Act"). The DRT,
thus, dismissed the OA as not maintainable giving liberty to the bank to
refer the matter to the arbitration as per law. The bank went in appeal but
this order is maintained by the DRAT dismissing the appeal in limine. The
present writ petition is filed against the aforesaid orders.
2. It is clear from the brief description of the factual matrix noted above
that the core issue is which of the two enactments, namely, Arbitration Act
and RDB Act is to prevail over the other. The Division Bench has framed
this legal question in the following format:
"Whether the provisions of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the
Arbitration Act) are excluded in respect of proceedings
initiated by banks and financial institutions under the
Recovery of Debts due to Banks and Financial
Institutions Act, 1993 (hereinafter referred to as the RDB
Act)."
3. When the matter came up for hearing before the Division Bench,
another judgment of Division Bench of this Court in Kohinoor Creations
and Ors. v. Syndicate Bank, 2005 (2) Arb. LR 324 (Delhi) was referred to
WP(C) NO. 3238/2011 Page 2 of 24
wherein it has been inter alia held that in view of the provisions of Section
34 of the RDB Act, the provisions of Arbitration Act stand excluded and on
that basis, it was argued that the view held by DRT and DRAT in the
impugned orders did not reflect the correct legal position which was
contrary to the aforesaid judgment of this Court. The Division Bench
considered it proper that the matter required to be settled by a larger bench
giving the following reasons therefor:
"Learned counsel for the petitioner has referred to a
judgment of Division Bench of this court in Kohinoor
Creations and Ors. Vs. Syndicate Bank 2005 (2) ARBLR
324 Delhi wherein it has been inter alia held that in view
of the provisions of section 34 of the RDB Act, the
provisions of the Arbitration Act stand excluded. In
coming to this conclusion, specific emphasis is laid on
sub-section (2) of Section 34 of the RDB Act. Section 34
of the RDB Act reads as under:-
"34. Act to have over-riding effect-
(1). Save as otherwise provided in sub-section(2), the
provisions of this Act shall have effect 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.
2). The provisions of this Act or the rules made there
under shall be in addition to, and not in derogation of the
Industrial Finance Corporation Act, 1948, the State
Financial Corporation Act, 1951, the Unit Trust of India
Act, 1963, the Industrial Reconstruction Bank of India
Ltd., 1984, the Sick Industrial Companies (Special
Provisions) Act, 1985 and the Small Industries
Development Bank of India Act, 1989."
WP(C) NO. 3238/2011 Page 3 of 24
The submission of the learned counsel for the petitioner
thus is, relying on the aforesaid judgment, that if a claim
is over Rs.10 Lakh then jurisdiction of the Civil Court is
excluded qua banks and financial institution,
and therefore banks and financial institution have to
necessarily approach the DRT for recovery of the amount
in terms of the RDB Act. In other words, the applicability
of the Arbitration Act stands ousted. In our considered
view, sub-section(2) of section 34 of the RDB Act
only provides that the provision of that Act are in
addition to certain acts specified therein. The question
which arises for consideration is whether by implication
all other Acts not referred to in sub-section (2) of Section
34 are overridden by the provisions of the RDB Act.
While considering this aspect, it will have to be borne in
mind that firstly, the Arbitration Act was enacted after
the enforcement of the RDB Act and secondly, the
exclusivity of jurisdiction conferred on the DRTs‟ is
perhaps applicable to public forums as against private
forums such as an arbitral tribunal. To test the
proposition, if one were to ask whether the DRT
would refuse to pass an order on a compromise
application where parties agree to an intercession of an
arbitrator on a portion of a claim during the pendency of
the matter before it; the answer may perhaps be in the
negative. There are therefore, to our mind, several
unanswered aspects of the matter which require closer
examination.
We are thus of the view that this matter is of some
importance and thus the question of law as aforesaid,
needs to be settled by a Larger Bench of this court..."
4. This is how the matter was placed before this Bench. Keeping in
view the importance of the issue involved and also that the respondent has
failed to put in appearance inspite of service, we had requested Mr. Parag P.
Tripathi, learned senior counsel to assist the Court. Mr. Tripathi stated that
WP(C) NO. 3238/2011 Page 4 of 24
after examining the whole matter, he was of the view that RDB Act was a
special statute which would prevail over the Arbitration Act. He thus
argued on these lines thereby supporting the cause of the bank. Mr.Tripathi
opened his submission by explaining the special status of the RDB Act and
the raison d'etre behind this enactment. He impressed upon the fact that
this Act was enacted in the background of swelling Non Performing Assets
(NPAs) and difficulty of banks and financial institutions to recover loans
and enforcement of the same. Mostly, these institutions are public financial
institutions and monies are public money. The focus was therefore
expeditious adjudication and recovery of debts. The validity of the Act was
upheld by the Supreme Court in Union of India v. Delhi High Court Bar
Association, (2002) 4 SCC 275 which set aside the judgment of the High
Court. Referring to preamble of the RDB Act, he pointed out that the same
provides for "establishment of tribunals for expeditious adjudication and
recovery of debts due to banks and financial institutions". Going by the
Objects and Reasons behind the RDB Act, it was crystal clear that the
purpose was to unlock the locked potentials of NPAs. In this sense, he
submitted, RDB Act was special statute enacted for specific purpose. In
this context, explaining the concept of a special law or statute, of
Mr.Tripathi endeavored to build step by step edifice of his submissions in
the following manner:
(a) Section 9 of CPC makes it clear that every party has a right of
recourse to civil remedy before a duly constituted civil court unless
the remedy is barred either expressly or by implication. It is also a
settled law that any provision ousting the jurisdiction of civil court
WP(C) NO. 3238/2011 Page 5 of 24
must be strictly construed. [Sahebgouda v. Ogeppa, (2003) 6 SCC
151].
(b) He then explained the working of RDB Act pointing out that RDB
Act is relatable to Entry 45 of List I (Banking). Preamble of this Act
provides for "establishment of tribunals for expeditious adjudication
and recovery of debts due to banks and financial institutions....".
Under Section 19, only a bank or a financial institution [as defined
under Section 2(d) and (h) of the RDB Act] can trigger the
provisions of the RDB Act when the „debt‟ [as defined under Section
2(g)] is more than `10 Lakhs [Section 1(4)]. Therefore, RDB Act
operates within a very narrow compass and deals with a very special
situation of recovery of debts due to banks and financial institutions,
which clearly makes it a special law dealing with a specific situation.
(c) On the other hand, Arbitration Act relates to Entry 11A
(Administration of Justice) and Entry 13 (Civil Procedure, including
Arbitration) of List III. As per the preamble of this Act, it
"consolidates and amends the law relating to domestic arbitration,
the international arbitration and enforcement of foreign arbitral
awards as to define the law relating to Constitution....". Premised on
this, submission of Mr. Tripathi was that the Arbitration Act takes
within its sweep all possible arbitrations dealing with an
exceptionally wide cross sections and possible areas of disputes.
Any dispute, which is arbitrable in nature, would be governed by the
provision of the Arbitration Act, which exposes its general nature as
regards the subject matter of disputes it deals with. Further, an
arbitral tribunal is an alternative to civil courts and its jurisdiction
WP(C) NO. 3238/2011 Page 6 of 24
would coincide with a civil court [Executive Engineer, Dhenkanal
Minor Irrigiation Division v. N.C. Budharaj, (2001) 2 SCC 721].
(d) Advancing his plea predicated on his aforesaid submission pointing
out the nature of RDB Act and Arbitration Act, Mr. Tripathi argued
that the Arbitration Act is a general statute vis-à-vis RDB Act which
is a special statute with regard to recovery of debts of banks and
financial institutions and, therefore, the provisions of special statute,
i.e. RDB Act, would prevail over those of general statute, i.e.
Arbitration Act.
(e) Mr. Tripathi accepted that Arbitration Act may be special statute
when it is placed in juxtaposition with the jurisdiction of civil courts
to entertain and adjudicate civil disputes inasmuch as in that sense,
the Arbitration Act provided for special forum, chosen by the parties
who wanted to remain away from the civil court for the adjudication
of their inter se disputes. His submission, however, was that there
have been instances where the same statute has been treated as a
special statute vis-à-vis one legislation and as a general statute vis-à-
vis another legislation. The issue arose in Life Insurance
Corporation of India v. D.J. Bahadur, (1981) 1 SCC 315, viz.
whether in the context of a dispute between workmen and
management (of LIC), the LIC Act or the Industrial Disputes Act is a
special statute. It was observed:
"52. In determining whether a statute is a special or a
general one, the focus must be on the principal subject
matter plus the particular perspective. For certain
purposes, an Act may be general and for certain other
WP(C) NO. 3238/2011 Page 7 of 24
purposes it may be special and we cannot blur
distinctions when dealing with finer points of law.
The Apex Court further held:
"....vis-a-vis 'industrial disputes' at the termination of the
settlement as between the workmen and the Corporation
the ID Act is a special legislation and the L.I.C. Act a
general legislation. Likewise, when compensation on
nationalisation is the question, the L.I.C. Act is the
special statute."
Similarly in the case of Damji Valji Shah v. LIC of India, AIR 1966
SC 135, the Supreme Court held:
"Further, the provision of the special Act, i.e. the LIC
Act, will override the provisions of the general Act, viz.,
the Companies Act which is an Act relating to companies
in general."
He also drew our attention to the decision of Snehadeep Structures
Pvt. Ltd. v. Maharashtra Small-Scale Industries Development
Corporation Ltd., (2010) 3 SCC 34, where the Supreme Court while
dealing with applicability of provisions of the interest on delayed payment
to Small Scale and Ancillary Industrial Undertaking Act, 1993 vis-à-vis
Arbitration Act, held:
"38. The preamble of Interest Act shows that the very
objective of the Act was "to provide for and regulate the
payment of interest on delayed payments to small scale
and ancillary industrial undertakings and for matters
connected therewith or incidental thereto." Thus, as far as
WP(C) NO. 3238/2011 Page 8 of 24
interest on delayed payment to Small Scale Industries as
well as connected matters are concerned, the Act is a
special legislation with respect to any other legislation,
including the Arbitration Act. The contention of the
respondent that the matter of interest payment will be
governed by Section 31(7) of the Arbitration Act, hence,
is erroneous. Section 4 of the Interest Act endorses the
same which sets out the liability of the buyer to pay
interest to the supplier 'notwithstanding anything
contained in any agreement between the buyer and the
supplier or in any law for the time being in force.' Thus,
Interest Act is a special legislation as far as the liability to
pay interest, or to make a deposit thereof, while
challenging an award/decree/order granting interest is
concerned."
He, thus, impressed that insofar as comparison of RDB Act with
Arbitration Act is concerned, RDB Act is to be treated as special statute
vis-à-vis Arbitration Act and on the application of settled principle of
generalia specialibus non derogant the former would prevail over the latter
to the limited extent of proceeding initiated by the Banks/Financial
Institutions for the recovery of debts.
5. In his attempt to carry home these points, other submissions of
Mr.Tripathi were as follows:
(i) Section 17 of the RDB Act makes it clear that the DRT alone is to
decide the applications of the Banks and Financial Institutions for
recovery of debts due to them. Also, Section 18 of the Act clearly
bars the jurisdiction of any other court, except High Court and
Supreme Court, from entertaining matters specified in Section 17.
Furthermore, Section 31 of the Act transfers all such cases pending
WP(C) NO. 3238/2011 Page 9 of 24
before any Court to the DRT. It is therefore evident from the scheme
of the RDB that an exclusive jurisdiction has been given to the DRT.
He argued that the law on this point has already been conclusively
settled by the Supreme Court in the matter of Allahabad Bank v.
Canara Bank, (2000) 4 SCC 406, where the issue was with regard to
jurisdiction of DRT and Recovery Officers under the DRT Act vis-à-
vis Company Court (when a winding up petition is pending, or a
winding up order has been passed). It was held that the adjudication
of liability and execution of the certificate in respect of debt payable
to banks and financial institutions is within the exclusive jurisdiction
of the DRT and the concerned Recovery Officer, and in such a case
the jurisdiction of the Company Court under Section 442, 537 and
446 of the Companies Act, 1956 stands ousted.
(ii) On the other hand, the Arbitration Act is a substitute for a civil Court
within the meaning of Section 9 to adjudicate civil disputes, subject
to the additional limitation where it is a right in rem, which is to be
adjudicated. Taking sustenance from the judgment of Supreme
Court in the matter of Booz Allen and Hamilton Inc. v. SBI Home
Finance Limited & Ors., (2011) 5 SCC 532, he pointed out that the
Supreme Court while dealing with the issue of „arbitrability‟ of
dispute held that Arbitral Tribunals are „private fori‟ chosen by the
parties in place of Courts or Tribunals which are „public fori‟
constituted under the laws of the country. All disputes relating to
„right in personam‟ are considered to be amenable to arbitration and
all disputes relating to „right in rem‟ are required to be adjudicated
by courts and public tribunals, being unsuited for private arbitration.
WP(C) NO. 3238/2011 Page 10 of 24
He attempted to apply the ratio of the aforesaid judgment to the
given case arguing that when the legislature has expressly made a
particular kind of dispute to be decided by a public forum, then the
same has been by implication excluded from the purview of
arbitrability and therefore cannot be decided by a private forum like
arbitration.
(iii) Mr. Tripathi also tried to draw support from Section 34 of the RDB
Act which provides a non-obstante clause. Section 34(2) stipulates
that RDB Act is „in addition to and not in derogation‟ to any law or
force. On the contrary, the Arbitration Act does not have any non-
obstante clause except a limited extent insofar as judicial intervention
is concerned as provided in Section 5 of the Arbitration Act. He thus
submitted that where there are two Acts, the one having a non-
obstante clause will prevail over the other and for this reason also,
RDB Act should prevail over Arbitration Act. He also submitted that
a finer reading of the provisions of RDB Act, particularly Section 34
thereof, would reveal that application of Arbitration Act had been
expressly as well as impliedly excluded. He also submitted that even
if the Arbitration Act is a latter Act, the concept of arbitration was
well known to Parliament right from Arbitration Act, 1891 through
to the Arbitration Act, 1940. Apart from Section 34, even Section 18
of the RDB Act ousts jurisdiction of all other courts in relation to
matters specified in Section 17. Since arbitration is an alternative to
the jurisdiction of civil courts and its jurisdiction would be confined
and in alternative to cases where civil courts have jurisdiction,
therefore, when the jurisdiction of civil courts are ousted, it would
WP(C) NO. 3238/2011 Page 11 of 24
impliedly oust the jurisdiction of the arbitral tribunal also. It is
Section 18 which is somewhat in pari materia with Section 5 of the
Arbitration Act.
(iv) Mr. Tripathi concluded his submissions by referring to the judgment
of the Supreme Court in Nahar Industrial Enterprise Ltd. v. Hong
Kong and Shanghai Banking Corporation, (2009) 8 SCC 646 and
submitted that the issue at hand stands settled by the aforesaid
judgment. In that case, the issue was whether the High Court or
Supreme Court has the power to transfer a suit pending in a Civil
Court to DRT. The Court enunciated the law as under:
"117. The Act, although, was enacted for a specific
purpose but having regard to the exclusion of jurisdiction
expressly provided for in Sections 17 and 18 of the Act,
it is difficult to hold that a civil court's jurisdiction is
completely ousted. Indisputably the banks and the
financial institutions for the purpose of enforcement of
their claim for a sum below Rs. 10 lakhs would have to
file civil suits before the civil courts. It is only for the
claims of the banks and the financial institutions above
the aforementioned sum that they have to approach the
Debt Recovery Tribunal. It is also without any cavil that
the banks and the financial institutions, keeping in view
the provisions of Sections 17 and 18 of the Act, are
necessarily required to file their claim petitions before
the Tribunal. The converse is not true. Debtors can file
their claims of set off or counter-claims only when a
claim application is filed and not otherwise. Even in a
given situation the banks and/or the financial institutions
can ask the Tribunal to pass an appropriate order for
getting the claims of set-off or the counter claims,
determined by a civil court. The Tribunal is not a high
powered tribunal. It is a one man Tribunal. Unlike some
Special Acts, as for example Andhra Pradesh Land
Grabbing (Prohibition) Act, 1982 it does not contain a
WP(C) NO. 3238/2011 Page 12 of 24
deeming provision that the Tribunal would be deemed to
be a civil court."
5. Mr. Puneet Bhalla, learned counsel appearing for the bank adopted
the aforesaid arguments. In addition, he heavily relied upon the reasons
given by the Division Bench in Kohinoor Creations (supra) and submitted
that the approach of the Division Bench in the said case was in tune with
the legal position which should be maintained.
6. From the detailed submissions made by Mr. Tripathi and Mr. Bhalla
as noted above and the reading of judgment of the Division Bench in
Kohinoor Creations (supra), it is clear that the entire rationale sought to be
projected is the exclusiveness of the RDB Act to deal with the matters
which fall within the jurisdiction of the Debt Recovery Tribunals
constituted under the said Act. On that basis, the attempt is to show that all
those matters which are covered by the RDB Act for which special
machinery in the form of Debt Recovery Tribunal and Debt Recovery
Appellate Tribunal is constituted, such matters come within the sole and
exclusive domain of Debt Recovery Tribunal and no other body or forum
has any jurisdiction to deal with such disputes.
7. There is no doubt that those matters which are covered by the RDB
Act and are to be adjudicated upon by the Debt Recovery Tribunal/ Debt
Recovery Appellate Tribunal, jurisdiction of civil courts is barred. Up to
this point, we are in agreement with the learned counsels. However, the
answer to the question posed before us does not depend upon the aforesaid
principle. That principle only ousts the jurisdiction of civil courts. Focus
WP(C) NO. 3238/2011 Page 13 of 24
of the issue, however, has to be somewhat different viz. even when a
special Tribunal is created to decide the claims of banks and financial
institutions of amounts more than `10 Lakhs, can the parties by mutual
agreement still agree that instead of the Tribunal constituted under the RDB
Act, these disputes shall be decided by the Arbitral Tribunal. If answer to
this question is in the negative, then those submissions made by the
counsels shall prevail. On the other hand, if we find that it is permissible
for the parties, by agreement, to agree for domestic forum of their own
choice, namely, Arbitral Tribunal under the Arbitration Act to deal with
such claims, then the edifice of the apparent forceful submissions of Mr.
Tripathi would collapse like house of cards as all those submissions would
be relegated to the pale of insignificance.
8. No doubt, for determination of disputes the State provides the
mechanism in the form of judicial fora, i.e. administration of justice
through the means of judicial system established in this country as per the
Constitution and the laws. However, it is also recognized that that is not
the only means for determination of lis or resolution of conflicts between
the parties. Still the parties are given freedom to choose a forum, alternate
to and in place of the regular courts or judicial system for the decision of
their inter se disputes. There has been a recognition of the concept that
notwithstanding the judicial system, parties are free to chose their own
forum in the form of arbitration. This was first recognized by enacting
Arbitration Act, 1891. Introduction of Section 89 in the Code of Civil
Procedure by amendment to the said Code in the year 2002 takes this
concept further by introducing various other forums, known as Alternate
Dispute Resolution. Thus, even when the matter is pending in the Court,
WP(C) NO. 3238/2011 Page 14 of 24
parties to the dispute are given freedom to resort to Lok Adalat,
conciliation, mediation and also the arbitration.
9. All civil societies demand a proper, effective and independent
judicial system to resolve the disputes that may arise. Resolution of
disputes by Municipal Courts is, therefore, prevalent in all countries and
independence of judiciary is endeavoured in democratic set ups. While
courts are State machinery discharging sovereign function of judicial
decision making, various alternate methods for resolving the disputes have
also been evolved over a period of time. One of the oldest among these is
the arbitration. This is a forum for dispute resolution in place of municipal
court. Important feature of arbitration is that parties to the dispute
voluntarily agree to get the disputes decided by one or more persons, rather
than the Court. Though the Indian Arbitration and Conciliation Act, 1996
does not contain a definition of "arbitration", Statement of Objects and
Reasons contained therein gives an indication of the general principles on
which arbitration is founded. These are:
i. The object of arbitration is to ensure a fair resolution of disputes by
an impartial tribunal without unnecessary delay or expense.
ii. The parties should be free to agree how their disputes are resolved
subject only to such safeguards as are necessary in the public
interest.
iii. Intervention of the courts should be restricted.
10. Thus, the Courts have not been the only forum for conflict
resolutions. As already pointed about above, arbitration in the form of
statute was given recognition in the year 1899 though even earlier to that,
WP(C) NO. 3238/2011 Page 15 of 24
arbitration in some or other form prevailed in this country. What is
important is that arbitration as an alternate to resolution by municipal courts
is recognized and in the process, sanctity is attached to the domestic forum
which is chosen by the parties themselves. In that sense, party autonomy is
recognized as paramount. It is a recognition of the fact that the parties are
given freedom to agree how their disputes are resolved. Even the
intervention by the Courts is restricted and is minimal.
11. What follows from the above? When arbitration as alternate to the
civil courts is recognized, which is the common case of the parties before
us, creation of Debt Recovery Tribunal under the RDB Act as a forum for
deciding claims of banks and financial institutions would make any
difference? We are of the firm view that answer has to be in the negative.
What is so special under the RDB Act? It is nothing but creating a tribunal
to decide certain specific types of cases which were earlier decided by the
civil courts and is popularly known as „tribunalization of justice‟. It is a
matter of record that there are so many such tribunals created. Service
matters of the civil servants and employees of public bodies/authorities
which were hitherto dealt with by the civil courts and the High Court are
now given to the Central Administrative Tribunal and State Administrative
Tribunals with the enactment of Administrative Tribunals Act, 1985.
Disputes of defence personnel are now dealt with by special tribunals called
Armed Forces Tribunal constituted under the Armed Forces Tribunal Act,
2007. With the creation of all these special tribunals, the matters which
were up to now dealt with by civil courts or High Courts are to be taken up
by these tribunals in the first instance. (We would like to point out that in so
far as High Court is concerned, constitutional remedy provided under
WP(C) NO. 3238/2011 Page 16 of 24
Article 226 of the Constitution of India remains intact as held in L.
Chandrakumar v. Union of India, (1994) 5 SCC 539. However, it is not
necessary to dilate on this issue as that does not have any bearing on the
present issue).
12. With the creation of these alternate fora with all trappings of the
Court and with the decision of the disputes which were hitherto dealt with
by the civil courts, can it be said that parties are now totally precluded and
prohibited of exercising their choice of domestic forum in the form of
arbitral tribunal. Before we answer this question, we would like to refer to
the judgment in the case of Booz Allen and Hamilton Inc. (supra). The
Supreme Court in that case dealt with the issue of "arbitrability of disputes"
and held that all disputes relating to „right in personam‟ are considered to
be amenable to arbitration and disputes relating to „right in rem‟ are those
disputes which are not arbitrable and require to be adjudicated by courts
and public tribunals, being unsuited for private arbitration. Law in this
respect is explained by the Supreme Court with utmost clarity, precision
and erudition in the following terms:
"32. The nature and scope of issues arising for
consideration in an application under Section 11 of the
Act for appointment of arbitrators, are far narrower than
those arising in an application under Section 8 of the Act,
seeking reference of the parties to a suit to arbitration.
While considering an application under Section 11 of the
Act, the Chief Justice or his designate would not embark
upon an examination of the issue of 'arbitrability' or
appropriateness of adjudication by a private forum, once
he finds that there was an arbitration agreement between
or among the parties, and would leave the issue of
arbitrability for the decision of the arbitral Tribunal. If
WP(C) NO. 3238/2011 Page 17 of 24
the arbitrator wrongly holds that the dispute is arbitrable,
the aggrieved party will have to challenge the award by
filing an application under Section 34 of the Act, relying
upon Sub-Section 2(b)(i) of that section.
33. But where the issue of 'arbitrability' arises in the
context of an application under Section 8 of the Act in a
pending suit, all aspects of arbitrability have to be
decided by the court seized of the suit, and cannot be left
to the decision of the Arbitrator. Even if there is an
arbitration agreement between the parties, and even if the
dispute is covered by the arbitration agreement, the court
where the civil suit is pending, will refuse an application
under Section 8of the Act, to refer the parties to
arbitration, if the subject matter of the suit is capable of
adjudication only by a public forum or the relief claimed
can only be granted by a special court or Tribunal.
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.
WP(C) NO. 3238/2011 Page 18 of 24
(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.
35. 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;
WP(C) NO. 3238/2011 Page 19 of 24
(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).
38. Generally and traditionally all disputes relating to
rights in personam are considered to be amenable to
arbitration; and all disputes relating to rights in rem are
required to be adjudicated by courts and public tribunals,
being unsuited for private arbitration. This is not however
a rigid or inflexible rule. Disputes relating to sub-ordinate
rights in personam arising from rights in rem have always
been considered to be arbitrable."
13. What is discernible from the above is that all disputes relating to
„right in personam‟ are arbitrable and choice is given to the parties to
choose this alternate forum. On the other hand, those relating to „right in
WP(C) NO. 3238/2011 Page 20 of 24
rem‟ having inherent public interest are not arbitrable and the parties‟
choice to choose forum of arbitration is ousted. Examined in this line, it is
obvious that a claim of money by the bank or financial institution against
the borrower cannot be treated as „right in rem‟. Each claim involves
adjudication whether, on the facts of that case, money is payable by the
borrower to the bank/financial institution and if so to what extent. Each
case is the decision on the facts of that case with no general ramifications.
A judgment/decision of the Debt Recovery Tribunal deciding a particular
claim can never be „right in rem‟ and is a „right in personam‟ as it decides
the individual case/claim before it with no elements of any public interest.
14. 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 Debt 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.
WP(C) NO. 3238/2011 Page 21 of 24
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 Debt 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
Debt 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 within the scope and jurisdiction of Debt
Recovery Tribunal are arbitrable.
15. Once that conclusion is arrived at, obviously the parties are given a
choice to chose their own private forum in the form of arbitration.
WP(C) NO. 3238/2011 Page 22 of 24
16. 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.
17. 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.
WP(C) NO. 3238/2011 Page 23 of 24
18. 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.
ACTING CHIEF JUSTICE
SANJAY KISHAN KAUL, J.
SEPTEMBER 13, 2012 RAJIV SHAKDHER, J. pk WP(C) NO. 3238/2011 Page 24 of 24