Karnataka High Court
Texport Overseas Pvt Ltd vs Canara Bank on 25 November, 2010
Author: Mohan Shantanagoudar
Bench: Mohan Shantanagoudar
IN me HIGH coum OF i'uI\iiNA'rAKA AT BANGALORE DATED THIS THE 25*" DAY OF NOVEMBER 2010 BEFORE : THE HON'BLfi MR.J£.|STICE MOHAN sHANTANAGo§sofgi§--.,,' C.M.P. ~g.4gg2o1g " ' V' B w n: Texport Overseas Pvt. Ltd., Having its Registered Office a At No.86, D--1, Industriai Suburb"~~._ 1}.' Stage, Yeshwanthpur " Banga|ore~56O O22, _ Represented by its Director _, V iVir.Satish Kumar Goenka"; _ i, 3?etitioner ( By Sri Basavaprabhu,S';"PatiI, 'S.r;,CoixJi_1seif for Sri Brijesh"Pa_t:j'i--i, Advocate '} .A.f1.d I Canara Bank», - V Branch Office: Overseas Branch, '~ ..,Ram'a'nas_hree Arcade.,------« * I1} .Floor," 18, E'/i.G.Road, i3angal,oi'ef'E">6O,V,'OO1. .. Respondent
(' iiolla, Sr.Counsei for Sri~..\/.H__aric|as Bhat, Advocate ) X rrriiirrhis CMP is filed under Section 11(6) of the Arbitration ,._'and*Cionci|iation Act, 1996, praying to appoint an arbitrator in terms of Ciause 8 of the Common Hypothecation Agreement
-{Annexure~C) in the interest ofjustice and equity. -2- This CMP having been heard and reserved for orders on 27"' October 2010, pronounced the same on 25"' November 2010. i QRDER The petitioner is a company registered:'*ungder'*i Companies Act, 1956. it is engagedginthe"'biisiineéss manufacturing and exporting of rea4dyma'de the case of the petitioner that'in,:vgco,nnectio_n with: its"busi'ness,"' C it has been availing working cagpi--tVa'I"vi_im»i.ts froimvvfianara Bank, Overseas Branch since 'time to time. At present, the Can4a:ra.__Bani{ g_ra«nitedV'w«;iV'rVi{ing capital limits to the petitiorier ter;r__r_is--,.._of." "sanction letter dated 10.10.2Ci.08, is produced at Annexure-' B' to the petition. _ As_p4er_ theiisanction letter, the sanction iimit 'was vtd-,taeii'secured"-ibyvarious securities. In terms of the said "2_Vsan'ction..ie«tte.r,""petitioner has executed the ioan documents, Hypothecation Agreement governing the
-Vreiationgship"between the parties. Copy of the Common "'4,:HYiDot.hecation Agreement is produced at Annexure~' C' to the The rights and obiigations of the parties as regards "gitihe securities and the amount avaiiabie in current account of i/\ ..3..
the petitioner are governed by the terms of the Common Hypothecation Agreement and other security documents. In the course of its business, the petitioner had booked"'sfe'=¢e'rai Forward Merchant Contracts through Foreign Canara Bank during the financiai y.ear..2Q0.7;bv8',':C-endin4_ge_ on 'Au 29.2.2008. According to the petitio'ner}._'_'tiiVou--g~h_:"mosgt Contracts came to be utiiiseC61.:,.'\Qr ca'ri£eii~e§ii}ir-._A2S;'"Fo:'warciVi' Merchant Contracts, despite V_.....iapse.._ of' "rriaturity date, remained outstanding. "s_aVidé} 2.S.':i_i?.A<V:)tr'»=.»\;Vard Merchant Contracts were canceiled"su'b'sequenvttly consequently, the current accoju-mt"pet_i_tio_ne_r debited. When the facts stoodV"v'thug:Si,i,'4th§~..,,,p\etitioner received an email cornmunicatiogni f_rorn_ .tn'e"r:espondent dated 7.9.2009 wherein it was§c|aii1*ied thatvtotaiiy 51 Forward Merchant Contracts as A":_Vpier'the !..iVst.yatta~ched to the communication has been booked by'-them'pVetitiio._ne.r"through respondent during the year 2008~ .409. ihéffioypyyohféiithe said e~maii communication is produced at 'yA,ni'iiexure?' F' to the petition. It is the case of the petitioner the iist attached to the communication, except for 10 "--«.:Fo'rward Merchant Contracts, rest cfivgie 41 contracts were -51- never booked by iti Further in the iist attached, 5 Forward Merchant Contracts having OBFC Nos.7883, 7790, 77:8, 7741 and 7789 were shown outstanding though the-i:'S~.a;é"'n.€ had been duly canceiled and the amount---
remitted by the petitioner. The petitioner the4.'_sai'd_y in email communication by its letter diateci:$7.9I2QA()Ei'_c!.ari_i*yi:n§:. its position. It aiso requestedth'e..Vrespondenti'it.O the-it records to ascertain the correctVne--s:s"L'vof"t.h.eirclaim regards the rest of the contracts booked by the petitioner. Certain ._othe'r" made in the petition with;--t_he'i.b.i,i_si»ne3s itransaictions between the parties. .ythe_:"'petitioner, excess debit is also made in respect this Co'urt.__wiii not go deep into the merits of the Vhflmatte-r._i=n4:*this:°petition fiied under Section 11(5) of the Arbitraition' i§j';_C.oncifiation Act, 1996 (hereinafter referred to [as 'th'e..A1c1;'.for short), it is whoiiy unnecessary for this Court rnention ail the detaiis of the business transactions 77"»____"'i'."betwe'en the two parties. The sum and substance of the RQK -5- petitioner's case is that the respondent~Bank has not performed its part of the obligations as per the contract entered into between the parties and consequenft'i'y:;f"--«the disputes have arisen between the parties. With ' interim orders urgently, the peti.tion.er District Court, Bangalore, by filing Ar,A.ii$ioi.'t:o"7~:t['2oyo§ Section 9 of the Act. The iearn_e'dv..V_Distr'ict_ Jude-e issued " it an order of temporary injunctierton'-29.12';2C109_.:§and the same is being con'tintu'eci't.,tVti'me to time. A.A.No.1071/2009:"is_ saiidwtto consideration before the eisttéicyt*?iq';Virt.:_j_._;h..'th..e 1!'i'ght.o"f the fact that the disputesthave the parties, the petitioner has approachedV"'t.hi"s reference of the dispute to ..)":\Fbitii73~t':._t-i'itAt3lJ nal "fo=r. rad_j__udication. ..V'v'Thet"vCommon Hypothecation Agreement dated the arbitration clause at Paragraphrs.
The ptetitiontetr has issued notice to the respondent by ".ijn.vokii--mpg the arbitration clause. However, the respondent- ~.j't3a'nkt' has sent its repiy notice dated 9.2.2010 contending -6- that the dispute raised is not covered by the arbitration ciause in Common Hypothecation Agreement, inasmuch as, the Forward Merchant Contracts are not part of facilities and not governed under Common Agreement.
3. The statement of Vobjecti__o:ns3are"fiied «. respondent-Bank in this petijtioin. vAccoifdin'g:"V"'to') the"
respondent--Bani<, the Vd'is3'pute.s""'ieferred to iinsmé petition have not arisen in respectgof::tranisa_cticn referred to in the Common Hy,o--o;theca';iony 'AVgre:e'm'e.ntv'da'ted 30.1.2009, but have arisen' Eo'.«-ward .VViV\V/iterchant Contracts entered into between' M/'s,_t\lisjgha'"Designs, a partnership firm and the Canara .,Bganit°d_ijring t'r'ieVé"\,:Iear 2007-08; that the Common "("Hygpothei:ationA Agreement was entered into between the ti'p.etitioVriefg:A%and_v:_j..the respondent in respect of credit faciilitives/Eo~a:n:s':i.e., the Packing Credit (BC) iimit of ?2S crores," iicetter of Credit (LC) and fiank Guarantees (86) of viffcrores sanctioned by the respondent--Bank on _1_Oi10.2008; that the Forward Merchant Contracts are not iv/x referred to in the Common Hypothecation Agreement; and that since the disputes are in respect of Forward M'e.rc~h_an_t Contracts entered in to between M/s.Nisha respondent-Bank, the petitioner cannotmpress _i--ni:o~..sje.rVi~ce«~th-es arbitration ciause found in Co.mntion3 us'H3.kp'o'th'e-éat_i0:r:V.is Agreement dated 30.1.2009 which.' is 'entered i;'rjio«;i::;etw1;eeh the petitioner and the respon_d:ent...V_v the respondent, the transactivo-ns' "W»s'.:i\iisha Designs and respondent--Bank took piacein. 2007»-08, whereas, the between the petitioner ...,and;r'A.'Vthe'r.es'p'ondent'V:g viias entered into on 3G.1.2OO53v..' TheV'us-Jim"a'n'd.:_"s--iJbstance of the case of the respondent i's._th:-itViaroitirationéclause found in the Common v4..ii§iypothé3.c:at'i~on Atjreem_er3.t cannot be invoked in respect of A"theV:fdispu_te%*,in.__question, inasmuch as the Common Hy'.p0:the'ca'ti0.riL:. 'Agreement is not applicabie to Forward Purchase. Contracts in question.
it is Itis not in dispute that M/s.Nisha Designs is a sister of the petitioner, inasmuch as, the said M/s.Nisha V' Designs is taken over by the petitioner. According to the petitioner, the dispute is between the petitioner respondent whereas according to the respondent,"the,fd*i§b--i«rte.,.' ~ is in fact between M/s.Nisha E)esigns~ and iciheivi're.§pohcl'_enta_ Bank. Since the Common Hypothe:t:atii:'i_An'~'Agreemientw 30.1.2009 is entered into p'etitioner,_'Athe'rVi' respondent, according to. the respon_d'e.nt, the..9ame cannot be pressed into servicebetween M/s.Nisha Designs and thevresp_onde'nt§' ' ii';
5. Whiie tnfe1i»'ir:Vé:jtii~ti.on'tiled under Section 11 of the Arbiirratiioin'i't'§t,_..Co'ri.ciiiati'o'n Act,wiV996 (hereinafter referred to as 'the'Act' for s_hoijrtj','*~._tjh'i«s..--Court will not go deep into the facts. Section" of.i"thAe- makes it clear that the Arbitral v."'l"ribu"na'i iisr.colmpetent"'te rule on its jurisdiction. The Arbitrai 'T-ribtrnati iris-..:,a'is'or~,c_i.;mpetent to decide on any objection with respect to existence or validity of the arbitration z'"*'<«.__Vagreyemen_ti That the Arbitral Tribunal may rule "on any it with respect to the existence or validity of the ..,,....:,a,Fb§itration agreement", shows that the Arbitral Tribuna|'s in _ 9 _ authority under Section 16 of the Act is not confined to the width of its jurisdiction, but goes to the very root of its jurisdiction. Therefore, there is no impediment on the any party to the iitigation in contending before Tribunal that it had been wrongly constituted no jurisdiction. (See the judgement7..A_'li'i}r lithe KONKAN RAILWAY CORPORA rro::§r'z.,jr'o.,A "Aggro ;iiv.o*r:-'Ii5:a -:?vs- * T' RAN! CONSTRUCTION PVT. LTD,,...rei3ofted i.1i1"(2QO'2:§) 2 sec 388 and aiso in the case"'oi,$£'5!;lii:R;,1?iiii);jSTRI1§S LTD., -115- GODREJ & ovcs MFG} CO,i"L'TD,,; Arrp.,A.-Gofksk , reported in (2004) 3 SCC 44?). 1gdC;_0l'~i§t?q1l;i¢Vnti};;,. jjthelliirbitrai Tribunal can go into 'the__ as.,,»_"'t0__ whether it has or has no jurisdictiontodeal vi,iith.,ti1e"nji'atter.
Accovnrding"to.__.the petitioner, the dispute in question V.i'elate's-V.to.__Vthne,.é:"C-ommon Hypothecation Agreement dated into between the petitioner and the 'respondents. liowever, according to the respondent, the dIispVu'te..yin question relates to M/s.l\iisha Designs and not to '"'~.___"'theVgpetitioner. Curiously, the respondent has not produced 'tbefore the Court anything to show the nature of agreement N/gs -19- entered into between the respondent and M/s.Nisha Designs. The respondent being the Bank could not have held would not have kept it secret, if really the dispute in_c:uest'io'n i"
relates to M/s.Nisha Designs.
7. It is by now well settled thatthis Courjthas decide in the petitions arising unde"r"a.§ection the Act as to whether there:'i~s_ agreement as defined in the Act and Vwhetherthye made the request before him; pattygto7siich"i"a'n.Qéiteement. It is also necessary whether the claim was a dead onefvorvataileangwgliZibarredflclairn""that was sought to be resurrected have concluded the transaction by rie'coV_rdin.g-- satisfaction of the mutual rights gt wiilqllnotvbe possible at this stage to decide whethe_r.\arA made is one which comes within the E"""'purview._g'of tVhe:"a;b;itration clause. It will be appropriate to .._,/..::"Vl'eaVVEA that "question to be decided by the Arbitral Tribunal on .ey'i--dence, along with the merits of the claims involved arbitration. This Court has to decide whether the M _1;, applicant has satisfied the conditions for appointing an Arbitrator under Section 11(6) of the Act. (see_4v~.ti':ei~.._ judgment reported in the case of M/s.S.B.P. 8:__«r.--'b..',',"'-V-.;r;g;-.-__j' _ M/S.PATEL ENGINEERING LTD. AND A_NorHER_.'("A---.iR 20.06' 1' SC 450).
In the matter on hand,V»'-.t'h'oughA"' contends that the disputeactually-***inyol$ke;l rauedii is in between respondent and but the respondent has not to show as to what is the In the absence of any mate'ri"ai«in:;'sup'po-rt"*of---:the'"respondent's contentions, this Courtlldoes anything on the question as to whether_ the 'iifigation in question is between andA"'W_s,_i\lvisha Designs. The said question also :be.decided by the Arbitral Tribunal.
Ii'i.._thev'abs}~eAnce of any agreement/document on record wlgshoyw relationship between M/s.Nisha Designs and the irespamént, this Court is unable to accept the contention 'Vl%':"_rna.d.e on behalf of the Bank that the dispute reiates to V _j2_ between M/s.Nisha Designs and the respondent. Be that as it may, since it appears prima facie, that too, in the absencem of any agreement between the Bank 8: M/s.Nisha.{§e'si§'V?;15ii:,_'j'. the dispute relates to the Common Hypot.h.ecatio_~n"Agreennerit .4 dated 30.1.2009, this is a fit case to7.ref.,'_er..TthCe»._m'a'tterVfto' Arbitral Tribunal for adjudication;'C__v'B.y thlewsaid pro'c.evs.s_,mn'o V prejudice or injustice will be causedfl'to_ any of parties, inasmuch as, the Arbitral ;ia'lso':d'ec,ide on its own jurisdiction. At that_:'po__int .of";'l'ribunal will take into consider§at_io;nIgali» icontentions raised before it .orV_o:therwise to decide the dispute between 'view of the totality of the facts and circumstances in view of availability of vvlarbitratioinvciause Common Hypothecation Agreement '(Clause _Noi...;8)., 'since this Court is of the prima facie opinion that 'the.idiVvspau"te eitists between the parties, the same shall be referred"'*Vt'o hfiirbitral Tribunal for adjudication. Accordingly, ftoltlowinlg order is made :
~ i<.Shivashanl<ar Bhat, Retired Judge, High Court of CC"-._A"fiiairnataka, residing at No.40:/29, 12*" Main, W _{3_ R.M.V.Extension, Sadashivanagar, Bangalore-8Q, is appointed as Sole Arbitrator, to resolve the dispute_.j?3etwieeAn the parties. The learned Arbitrator, on receiptof this order shall enter upon the reference, iss;oe"notice'toothed"
parties and then proceed to resol1§feA~'iVthie. accordance with the Arbitratioriand Co'n'cil:iation'.:A¢{§}.4,995. Office is directed thisvvorder to the learned Arbitrator, forthwith-.-iA_it[./isffurth"eAAg:~V'.;j";f_ected to return all the original the petition to the petitioner4'to::."en'a'bw'le.:tjhejfn"toiprclduce before the learned Arbitrator, Petition,.i_slldis,trotsé.d accordingly, sell:
Judge