Calcutta High Court
Citicorp Finance (India) Ltd vs Manoj Ray & Anr on 31 July, 2017
Equivalent citations: AIR 2017 CALCUTTA 268, (2017) 3 CALLT 695, (2018) 1 ICC 436, (2017) 4 CAL HN 76
Author: I.P. Mukerji
Bench: I.P. Mukerji
1
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
Original Side
A.P. No. 438 of 2017
Citicorp Finance (India) Ltd.
v.
Manoj Ray & Anr.
A.P. No. 439 of 2017
Citicorp Finance (India) Ltd
v.
Jay Prakash Roy & Anr.
A.P. No. 539 of 2017
Srei Equipment Finance Limited
v.
Sharan Raj Singh & Anr.
A.P. No. 503 of 2017
Srei Equipment Finance Limited
v.
Kutubbuddin Shaikh & Anr.
For the petitioners:- Mr. Swatarup Banerjee
Mr. Arif Ali
Mr. Ratul Das
Mr. P. Srivastava
Ms. Sneha Sharma
Ms. Sannoye Chakraborty
Mr. Biplab Majumder
...Advocates
For the Respondents:- Mr. Priyankar Saha
Mr. L.R. Mondal
Mr. P. Saha
Ms. Amrin Khatoon
Mr. Apurba Kumar Ghosh
...Advocates
Judgement On: - 31st July, 2017
I.P. MUKERJI, J.
A very interesting point of law has arisen in these four cases. All of them are being disposed of by this common judgement.
Section 9 of the Arbitration and Conciliation Act, 1996, before its amendment on 23rd October, 2015, empowered the court to make inter alia an order for preservation, interim custody and sale of any property 2 which was the subject matter of the arbitration agreement, to pass an order of interim injunction, to appoint a receiver and so on. After amendment of this Act, once the arbitral tribunal has been constituted, it has the power to pass these orders. If for any reason the court finds that the order of the tribunal will not be efficacious, it might entertain the application. Any party to an arbitration might apply to the court and now the tribunal under Section 9. This application can be made before the arbitral proceedings, during it and after an award has been passed. It has to be made before the execution proceedings under Section 36 of the Act.
In each of these four matters an award has been passed by the learned arbitrator. Till now the respondents are using the equipments which are hypothecated by them to the petitioners, by agreement. The respondents have failed and neglected to pay the instalments payable under the respective loan cum hypothecation agreements. By the awards in question the respondents have been directed to pay the sums due under the agreement together with interest accrued thereon and penalty subject to the petitioners' charge over the equipments. Either the respondents have filed applications to set aside the awards under Section 34 of the said Act or the time to make the same has not expired.
Now, the problem is this: The petitioners want to invoke Section 9 of the said Act, by appointment of receivers by this court to take possession of the equipments, sell them and hold the proceeds to the credit of the proceedings, during the pendency of the Section 34 applications. Learned Counsel for the petitioners Mr. Swatarup Banerjee and Mr. Ali submit that the equipments in the hands of the respondents are fast depreciating. If the petitioners ultimately succeed in the applications filed by the respondents to challenge the awards their interest will be seriously affected by the deterioration of the equipments and loss of their market value.
3On the other hand Mr. Saha for the respondents submits that since applications to set aside the awards are under consideration by the court or the time to make them is not over, under Section 36 no order under Section 9 can be passed as that would tantamount to enforcement of the award.
FACTS:
What happened in the case (AP 438 of 2017) is this. The equipment in question is a Hyundai R 210-7 equipment bought on loan obtained by the respondents from the petitioners and hypothecated to the latter. The agreement between the parties was made on 17th July, 2013 by which the petitioner lent and advanced Rs. 39,10,000/- to the respondent No.
1. The respondent No. 2 stood as the guarantor. The respondents according to the petitioner defaulted in the payment of instalments. On 18th September, 2015 the petitioner invoked the arbitration clause under Section 21 of the Arbitration and Conciliation Act, 1996. Meanwhile, the respondents filed a title suit (T.S. 1592 of 2015) before the learned City Civil Court at Calcutta, and obtained an order of injunction on 21st November, 2015 restraining the petitioner from taking possession of the equipments. The petitioner subsequently filed a Section 8 application before the said court. The said Section 8 application could only be disposed of 28th April, 2017 vacating the order of injunction, much after the award was passed in favour of the petitioner on 15th April, 2016.
Therefore, it is quite evident that during the pendency of the Section 8 application the petitioner could not obtain an order appointing a receiver under Section 9 to take possession of the equipment. This application under Section 9 of the Arbitration and Conciliation Act, 1996 (AP 438 of 2017) has been filed by the petitioner within the period of three months from the date of serve of the award provided by the said Act to the respondents to make an application to set aside the award. 4 We all know, by the operation of Section 36 of the said Act the award cannot be enforced during the time allowed to the award debtor to make a setting aside application.
The facts of the case AP 439 of 2017 are more or less similar. Keeping the petitioner in the dark the respondent filed a title suit (T.S. 1591 of 2015) before the VI bench of the learned City Civil Court, Calcutta asking for a declaration regarding the ownership of the vehicle and for an injunction restraining the petitioner from "disturbing the peaceful possession of the plaintiff". On 21st November, 2015 an interim order of injunction was passed by the court restraining the petitioner from disturbing the possession of the respondents over the vehicle in question. The respondents did not appear in the arbitral proceedings. The learned arbitrator proceeded to make and publish the award on 15th April, 2016. Thereafter the respondents have filed an application to set aside the arbitral award, in this court (AP 619 of 2016). In the meanwhile on an application under Section 8 of the Arbitration and Conciliation Act taken out by the petitioner, on 26th April, 2017, the learned City Civil Court vacated its interim order and allowed the Section 8 application made by the petitioner.
It appears from the submissions of learned Counsel for the parties, though full facts have not been told to the court that the respondents have filed another Section 9 application in the learned City Civil Court which is still pending. The petitioner has filed a Section 42 application. The award in AP 439 of 2017 is as follows:
"Having regard to the aforementioned observations I therefore make the following award:-
a) I Award and declare that the claimant namely M/S. Citicorp Finance (I) Ltd. has the first charge over of the said motor vehicle being model 5 HYUNDAI- R-80 bearing Machine Serial No. N101D00510, with all accessories thereon and entitled to possession thereof.
b) I Award and direct that sum of Rs. 1403313/- be paid to the said claimant by the said Respondents.
c) I Award and direct the Respondents to pay interest on Rs. 1403313/- @ 30% p.a. from the date of reference till publication of award. The claimant is further entitled for interest on Award @ 18% per annum from the date of Award till realization.
d) I Award the claimed to seize and sell the said vehicle and adjust the sale proceeds towards its claim only after vacating of interim order dated 21/11/2015.
e) I Award and direct that a sum of Rs. 7,000/- be paid to the claimant by the Respondents being the amount of cost referred herein.
f) Respondents are jointly and/or severally liable for the above payments.
In compliance of the provisions of section 31 (4) of the said Act, it is hereby record that the Arbitration Proceedings were held at 10, Old Post Officer Street, Ground Floor, Room No.-7, Kolkata-700001. The arbitral proceedings commenced on 16/11/2015.
Dated this 15th Day of April-2016"
The other awards are similar.
In the third case (AP 503 of 2017) the arbitrator made and published the award on 19th June, 2017. It seems that the learned arbitrator prior to making the award was approached under Section 17 of the said Act by the petitioner for interim reliefs. A custodian was appointed but he could not take possession of the asset in question. As is evident the respondents in this case have time to file the setting aside application. 6 In this case also orders have been sought from this court by the petitioner to appoint a receiver to take possession of the equipment and to sell it in pro tanto satisfaction of their claim.
The fourth case is (A.P. 539 of 2017). In this case an application under Section 9 of the Arbitration and Conciliation Act (AP 1059 of 2013) had been filed in this court. It was disposed of 23rd February, 2017 with the asset lying in the custody of the petitioner. The arbitral proceeding before the learned arbitrator was commenced and resulted in an award dated 30th March, 2015. The respondents have challenged this award by filing an application under Section 34 of the said Act (AP 1360 of 2015). That application is still pending.
THE LAW:
It is an absolutely admitted position that in all the four cases the arbitral proceedings commenced before coming into force of the Amendment Act, 2015. Hence, filing of an application for setting aside of the award under Section 34 of the said Act or availability of time to file it operated as an automatic stay of execution of the award. In those circumstances, how far can the hands of the court be stretched under Section 9 of the said Act, post publication of the award? Now, the petitioners want receivers to take possession of the assets, sell them and hold the sale proceeds. Does that amount to enforcement or partial enforcement of the awards? More importantly how are the respective rights and obligations of the parties under Sections 9 and 36 of the Act to be determined and balanced?
Section 36 of the said Act prior to its amendment is set out below: "36.Enforcement--Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the court."7
This section forbade enforcement of the award pending determination of the Section 34 application. Enforcement is synonymous with execution of the award. Take the awards in these cases. They are for payment of sums of money. The equipments are charged securing payment of the awarded sums. This means that in execution the equipments will be sold and the proceeds of the sale applied towards payment of the awarded debt. If there is any deficit, it would be met by further execution against the assets of the award debtor Suppose, the award debtor decides not to take out an application to set aside the award. In that case, on the expiry of the time prescribed under Section 34 (3) to file an application to set aside the award, the award holder has the option of either proceeding under Section 9 or in execution. If the remedy under Section 9 appears to be more efficacious the award holder may avail of this remedy for interim execution, before levying the formal execution. In that case there is no incompatibility between Section 9 and Section 36 of the said Act.
Now, if the setting aside application is allowed, the award debtor will get back the equipment without the requirement of making any payment. If the award cannot be enforced under Section 36, then the court ordinarily does not have the power to attach and sell the equipments. If the equipments are attached and sold, they cannot be given back to the judgement debtor, in the event of his success in the Section 34 application. Yet, Section 9 of the said act permits inter alia sale of the subject matter of arbitration after the award is made. How are the two sections to be reconciled?
A division bench of our court presided over by Mr. Justice Sanjib Banerjee has opined in Srei Equipment Finance Ltd. v. Mohan Jha & Anr decided on 16th January, 2017 that for preservation of the subject matter or if the subject matter is perishable it might be sold under Section 9, pending execution.
8Two decisions of the Bombay High Court, Delta Construction Systems Ltd., Hyderabad v. Narmada Cement Company Ltd., Mumbai reported in 2002 (1) MhLj 684 and M/s. Kotak Mahindra Prime Ltd. v. Amin Tharani decided on 7th August, 2009 cited by the petitioners, express the opinion that after passing of the award but before it is enforced the court can pass orders for preservation and sale of the property which is the subject matter of the arbitration. Whether these remedies ordered by the court after the award under Section 9 of the said Act comes into collision with a bar to execution under Section 36 of the said Act are not discussed in these judgements. The division bench of the Gujarat High Court in Essar Oil Limited v. United India Insurance Company Ltd. reported in (2015) 3 GLH 28 cited by the respondents is on a completely different footing. It says that the power of taking custody of the subject matter of the arbitration and directing its sale by the court post publication of the award should be made if the principles of Order 38 Rule 5 of the Code of Civil Procedure were satisfied. I am afraid their lordships of the division bench were not properly assisted by learned counsel for the parties. The arbitration is to be taken as a suit. The award is to be taken as a decree. Orders under Section 9 of the said Act post award are akin to orders passed by the court post decree. Therefore, it is like passing an order post decree Order 38 Rule 5 makes it explicit that it is only available "at any stage of the suit." Hence, in my opinion it is not available after the decree passed or the award is made. Therefore, borrowing its principles to pass orders in Section 9 does not appear to be legally correct.
In order to support the said provision in Section 9, and to apply it so that it does not come into conflict with Section 36, one has to look towards the law of restitution embodied in Section 144 of the Code of Civil Procedure. The principle is that if while the execution is pending the assets of the judgement debtor are sold under orders of court it is not in 9 a position to give them back to the judgement debtor in the event of his success in the appeal or revision. However, the court has the power to restitute the judgement debtor to the same position he was at the time of passing the sale order. Section 144 is inserted below:
"144. Application for restitution.- (1) Where and in so far as a decree or an order is varied or reversed in any appeal, revision or other proceeding or is set aside or modified ii any suit instituted for the purpose, the court which passed the decree or order shall, on the application of any party entitled to any benefit by way of restitution or otherwise, cause such restitution to be made as will, so far as may be, place the parties in the position which they would have occupied but for such decree or order or such part thereof as has been varied, reversed, set aside or modified and, for this purpose, the court may make any orders, including orders for the refund of costs and for the payment of interest, damages, compensation and mesne profits, which are property consequential on such variation; reversal, setting aside or modification of the decree or order. Explanation: For the purposes of sub-section (1), the expression "court which passed the decree or order" shall be deemed to include,--
(a) where the decree or order has been varied or reversed in exercise of appellate or revisional jurisdiction, the court of first instance;
(b) where the decree or order has been set aside by a separate suit, the court of first instance which passed such decree or order;
(c) Where the court of first instance has ceased to exist or has ceased to have jurisdiction to execute it, the court which, if the suit wherein the decree or order was passed were instituted at the time of making the application for restitution under this section, would have jurisdiction to try such suit.
(2) No suit shall be instituted for the purpose of obtaining any restitution or other relief which could be obtained by application under sub-section (1)." 10
Mr. Justice M.N. Venkatachaliah who was then the Chief Justice, remarked in Mrs. Kavita Trehan and another v. Balsara Hygiene Products Ltd. reported in AIR 1995 SC 441 that restitution was a remedy for unjust enrichment. The principles were to be found in equity and at law.
Mr. Justice R.C. Lahoti summed up the principle of restitution in South Eastern Coalfields Ltd. V. State of M.P. and others reported in AIR 2003 SC 4482 as follows:
"24. In our opinion, the principle of restitution takes care of this submission. The word 'restitution' in its etymological sense means restoring to a party on the modification, variation or reversal of a decree or order, what has been lost to him in execution or decree or order or the court or in direct consequence of a decree or order (See Zafar Khan & Ors. v. Board of Revenue, U.P. & Ors. AIR 1985 SC 39)., . In law, the term 'restitution' is used in three senses; (i) return or restoration of some specific thing to its rightful owner or status; (ii) compensation for benefits derived from a wrong done to another; (iii) compensation or reparation for the loss caused to another. (See Black's Law Dictionary, Seventh Edition, p.1315). The Law of Contracts by John D. Calamari & Joseph M. Perillo has been quoted by Black to say that 'restitution' is an ambiguous term, sometimes referring to the disgorging of something which has been taken and at times referring to compensation for injury done. "Often, the result in either meaning of the term would be the same. ..... Unjust impoverishment as well as unjust enrichment is a ground for restitution. If the defendant is guilty of a non-tortuous misrepresentation, the measure of recovery is not rigid but, as in other cases of restitution, such factors as relative fault, the agreed upon risks, and the fairness of alternative risk allocations not agreed upon and not attributable to the fault of either party need to be weighed." The principle of restitution has been statutorily recognized in Section 144 of the Code of Civil Procedure, 1908. Section 144 of the C.P.C. 11 speaks not only of a decree being varied, reversed, set aside or modified but also includes an order on par with a decree. The scope of the provision is wide enough so as to include therein almost all the kinds of variation, reversal, setting aside or modification of a decree or order. The interim order passed by the Court merges into a final decision. The validity of an interim order, passed in favour of a party, stands reversed in the event of final decision going against the party successful at the interim stage.
25. Section 144 of the C.P.C. is not the fountain source of restitution; it is rather a statutory recognition of a pre-existing rule of justice, equity and fair play. That is why it is often held that even away from Section 144 the Court has inherent jurisdiction to order restitution so as to do complete justice between the parties."
Under Section 144, the trial court effects restitution. Let us view a Section 34 proceeding as an appeal or a revision application. If the judgement debtor succeeds in the setting aside application, he cannot go back to the arbitrator at the trial court because the arbitral proceedings have been terminated by publication of the award. [See Section 32 of the Arbitration and Conciliation Act, 1996].
Mr. Justice Prabir Kumar Samanta of this court in Parul Mukherjee v. Gouri Biswas and others reported in 2001 AIHC 4322 held that the executing court had the power under Section 151 of the Code to order restitution in the interest of justice.
If the asset which is the subject matter of the suit is converted into money by sale, the court has the power to order restitution in whatever manner it deems fit and proper, to achieve a just and equitable result. Therefore even if the Section 34 application succeeds and pending it the subject matter of the property has been sold, the arbitrator, cannot be approached like a court of the first instance by the judgement debtor for 12 restitution under Section 144 of the Code. The only remedy open to him is to the apply for restitution before the executing court. Therefore, if one applies the principle of restitution then there is no incompatibility between Section 36 and Section 9 so far it relates to sale of the subject matter of the arbitration after the award and pending the setting aside application. Suppose, the judgement debtor succeeds in the setting aside application and the subject matter of the arbitration, the equipment has been sold in a Section 9 application during its pendency and the sale consideration is held by the court. The court is in a position to restitute the judgement debtor to the same position he was at the time of the sale of the equipment.
Hence, in my judgement, the court has the power in a Section 9 application to order sale of the equipment in question or the subject matter of arbitration pending determination of the Section 34 application, on terms and conditions that would enable it to fully restitute the award debtor to the position he was at the time of its sale on his succeeding to get the award set aside in a Section 34 application. It is important that the sale proceeds or any benefit under the award do not go to the award holder during the pendency of the Section 34 application and that it is held by the court or a Receiver appointed by it. The subject equipments/vehicles are depreciating assets and fast deteriorating.
Hence, I, appoint Mr. Rajiv Lal, Advocate, 4 K.S. Roy Road, Kolkata-700 001 and Mr. S.K. Mishra, Advocate, Bar Association Room No. 4 as Joint Receivers in AP 438 of 2017 Mr. Partha Sarathi Basu, Advocate Bar Association Room No. 2 and Mr. Chittaranjan Ghosh, Advocate Bar Association Room No. 4 as Joint Receivers in AP 439 of 2017, Ms. Saswati Ghosh Sinha, Advocate andMr. Suman Chatterjee, Advocate Bar Association Room No. 13 as Joint Receivers in AP 503 of 2017 Mr. Amlan Jyoti Sengupta, Advocate and Mr. Rahul Sengupta, Advocate, Bar 13 Library Club as Joint Receivers in AP 539 of 2017 at a remuneration of 800 GMs each to the paid by the respective petitioners to take possession of the equipments/vehicles where possession has not been taken and effect sale of the equipments in question upon notice to the award debtors by public auction or private treaty, subject to confirmation by this court. They may act jointly or severally. The joint receivers will invite offers and incorporate them along with their comments in reports to be filed by them in court by 31st August, 2017. Copies of the reports will be circulated to the parties. Any Receiver appointed earlier stands discharged. Thereafter, the respective petitioners will take out applications for confirmation of sale.
Certified photocopy of this Judgment and order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
(I.P. MUKERJI, J.)