Delhi High Court
Associates India Financial Services ... vs Mr. Jairaj Shetty on 22 January, 2004
Equivalent citations: 2004(1)ARBLR280(DELHI), 109(2004)DLT854, 2004(73)DRJ53
Author: Mukundakam Sharma
Bench: Mukundakam Sharma
JUDGMENT Dr. Mukundakam Sharma, J.
1. These are two petitions which are filed by the petitioner - one being under Section 11 of the Arbitration and Conciliation Act, 1996 and the other being under Section 9 of the Arbitration and Conciliation Act, 1996 (for short `the Act') . As the two positions are inter-related, I propose to dispose of both the petitions by this common judgment and order.
2. According to the petitioner, disputes between the parties are governed by an arbitration clause and in that view of the matter all the disputes that arise between the parties in terms of the said arbitration clause contained in the loan agreement are required to be adjudicated upon and decided through the process of arbitration by appointing an arbitrator. In the petition filed under Section 9 of the Act the petitioner has prayed for Orders in the nature of interim measures with regard to the two excavators which were the subject-matter of the loan agreement between the parties. In Order to appreciate the contentions of the counsel appearing for the parties it would be necessary to deal with the basic facts leading to the filing of the present petitions.
3. The parties hereto admittedly entered into a loan agreement on August 26, 1999 whereby loan of an amount of Rs. 60 lakhs was given to the respondent by the petitioner for purchase of two excavators. Monthly rentals and repayment schedule of the loan is annexed to the loan agreement which was executed between the parties. A copy of the said loan agreement executed between the parties on August 26, 1999 along with Schedule I giving particulars and the details as to how the monthly rentals and repayment is to be made are annexed to the petition. The said loan agreement is signed by the petitioner as also by the respondent. The loan agreement has a clause which is numbered as 16.5 and it deals with `Dispute Resolution'. It is provided in the said clause that an effort shall be made to resolve differences and disputes arising in connection with this agreement in an informed and amicable manner by the company and the servicer, i.e., the respondent herein, as the case may be, and that if the parties are unable to settle the matter within thirty days after notification, either party may commence arbitration proceedings to resolve such matter in accordance with the procedure set out in the said clause. The procedure sets out therein envisages that the said disputes and differences would be finally settled under the new Arbitration and Conciliation Act, 1996 by a sole arbitrator appointed by mutual consent and that the place of arbitration shall be Delhi. This agreement further provides that the courts at Delhi shall have exclusive jurisdiction in the event of any dispute arising between the parties.
4. The respondent received the aforesaid loan in terms of the loan agreement and admittedly paid 21 Installments. It is the case of the petitioner that after making payment of the said 21 Installments there was a default on the part of the respondent in making Installment payment and accordingly a notice was issued to the respondent on May 1, 2001 giving details of the transactions between the parties, namely, between the petitioner and the respondent. It was further stated in the said notice that in terms of the books of accounts maintained by the petitioner as on April 30, 2001 the respondent was required to pay a sum of Rs. 28,45,557/-. By the said notice, the respondent was called upon to pay the said amount along with an interest at the rate of 24% per annum within a period of three days from the receipt of the notice. It was also brought to the notice of the respondent that upon failure of the respondent to comply with the terms of the said notice, appropriate proceedings would be initiated by the petitioner. The said notice was received by the respondent and a reply was sent which is also placed on record as Annexure 'J'. The said reply is dated May 3, 2001. It was stated in the said reply by the respondent that the respondent has all the intention to clear all legitimate dues. It was pointed out that unless the respondent had good intention of repayment of Installments, the respondent would not have paid total sum of Rs. 48,27,754/- as against Installments up to April 2001 amounting to Rs. 51,15,540/-. In the said reply it was, however, admitted that Installments were not paid in time due to non-receipt of the contract bill amount from the customers of the respondent. An undertaking was given by the respondent to the petitioner in the said letter that they had no intention to withhold payments of the petitioner making it further clear that the outstanding dues together with interest would be paid on or before May 10, 2001 and the balance ten Installments shall be settled in time. It transpires from the records that subsequent thereto also about three Installments were paid by the respondent to the petitioner. However, it is the case of the petitioner that the remaining balance Installments were not paid and accordingly this petition under Section 11 of the Act was filed in this Court praying for appointment of an Arbitrator in terms of the arbitration clause. Another application under Section 9 of the Act is also filed praying for interim Orders with regard to custody of two excavators.
5. Counsel appearing for the respondent, however, contested both the petitions on the ground that no dues are payable by the respondent as per repayment schedule up to July 2001. It is also the stand taken by the respondent that the respondent has instituted a suit in Orissa praying for a decree of permanent injunction restraining the petitioner from taking possession of the two excavators and also restraining the petitioner from selling, alienating or disposing of in any manner the two excavators and also for rendition of accounts. As the respondent has instituted a suit in Orissa it is submitted by the counsel for the respondent that both the proceedings under Section 11 and 9 of the Act are barred by res judicata and also by the principle of waiver as already Orders have been passed by the Civil Court at Orissa regarding custody and possession of the two excavators and also regarding the accounts relating to the aforesaid loan agreement. It is submitted that since the petitioner has contested the said suit by taking active part therein, therefore, the principle of waiver is also applicable.
6. I have considered the aforesaid submissions of the counsel appearing for the parties in the light of the documents which are placed on record. It is the admitted position between the parties that the aforesaid loan agreement was executed at Delhi with a specific provision as to how the disputes arising out of and in connection with the loan agreement between the parties were required to be resolved. Both the parties signed the said document and acted upon it as the petitioner advanced a loan of Rs. 60 lakhs to the respondent for purchase of the aforesaid two excavators with a stipulation that the amount given on loan shall have to be repaid according to the schedule which is annexed to the loan agreement. The respondent also admittedly made payment of Installments although it is apparent on the face of the record that some Installments are yet to be paid. In this connection reference may be made to the provision of dispute resolution clause being Clause No. 16.5 which specifically provides that if there be any disputes and differences arising in connection with the loan agreement, the same are required to be resolved by the parties through mutual discussion and in case the parties fail to arrive at a settlement then in that event any one of the parties could make request for resolution of the dispute by appointment of a Arbitrator in terms of the aforesaid clause. It is also specifically provided therein that the place of arbitration shall be Delhi. In the loan agreement itself it is specifically provided that the courts at Delhi shall have exclusive jurisdiction in the event of any disputes arising between the parties. In view of the aforesaid clauses in the agreement the respondent, if he had any grievance, should have taken recourse to these provisions as the respondent was bound by the terms and conditions of the agreement. However, the respondent instead of proceeding in accordance with the clauses of the agreement preferred to file a suit in the civil court at Cuttuck. The suit was filed in the court of Senior Civil Judge, Senior Division, Cuttuck, Orissa, which was registered as Suit No. 85/2001. The petitioner herein, who was arrayed as the defendant in the said suit, filed an application under Section 8 of the Act in the said proceedings which was considered but was rejected by the learned Senior Civil Judge. I am informed that as against the said Order passed by the Senior Civil Judge a revision was preferred which was also dismissed and consequently a writ petition was filed as against the said Order by the petitioner which is pending consideration before the Orissa High Court. However, in the meantime, the trial court proceeded to issue an injunction in favor of the respondent herein who was plaintiff there in respect of the two excavators and accordingly having no other option the petitioner contested the said proceedings. According to the counsel for the respondent, the said action on the part of the petitioner in contesting the injunction application and filing an appeal and a revision petition before the High Court would amount to waiver and also res judicata.
7. In Order to appreciate the said contention I may refer to the provisions of Section 2 of the Act. The word 'court' is defined under Section 2(1)(e) to mean the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit. Section 11 of the Act provides that if a party to an agreement fails to appoint an arbitrator, an application could be made before the court for appointment of an arbitrator and such request made by a party shall be placed before the Chief Justice who shall make the appointment in terms of the provisions of Section 11 of the Act. It is also provided under Section 9 of the Act that a party may, before or during arbitral proceedings or at any time after the making of the arbitral award can make an application seeking for an interim measure or protection for preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement. Reference is also required to be made to the provisions of Section 8 of the Act. The said Section has a bearing on the facts of the present case and is extracted below:-
"8. Power to refer parties to arbitration where there is an arbitration agreement. - (1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanies by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.
8. A reading of the aforesaid provisions would make it clear that if there be any disputes between the parties with regard to the subject-matter of an agreement and if the parties fail to appoint an arbitrator in terms of the said provisions of the arbitration agreement, the aggrieved party can approach the court in terms of the provisions of Section 11 read with Section 2(1)(e) of the Act. When the aforesaid provisions are so construed, it is established that the court in the present case would be the High Court of Delhi as it is specifically stated in the arbitration clause itself that the place of arbitration shall be Delhi. It is also provided under the jurisdiction clause of the loan agreement that the courts at Delhi shall have the exclusive jurisdiction in the event of any disputes arising between the parties. It may be made clear at this stage that even if two or more competent courts which can entertain a suit consequent upon a part of cause of action having arisen there within, but if the parties to an agreement agreed to vest jurisdiction in one such Court to try the dispute which might arise as between themselves, the agreement would be valid and the suit would lie only in that Court. This aspect is settled by the Supreme Court in ABC Laminart Pvt. Ltd. and another v. A.P. Agencies, Salem, . Therefore, the court at Delhi would have jurisdiction to decide the dispute of the present nature which is raised in the present petition by the petitioner as the disputes revolve around the custody and possession of the excavators and also the quantum of loan amount still unpaid and also the interest payable thereon. The disputes, therefore, clearly arise between the parties in connection with the agreement and the said disputes are required to be resolved through the process of arbitration. In Konkan Railway Corporation Ltd. and others v. M/s. Mehul Construction Co., , and the Constitution Bench judgment of the Supreme Court in Konkan Railway Corporation Ltd. and another v. Rani Construction Pvt. Ltd, , it was held by the Supreme Court that the Chief Justice or his designate under Section 11 of the Act exercises purely administrative functions and it is not open to him to discharge any judicial function of adjudicating the dispute even regarding the `existence of arbitration agreement'. The respondent herein has raised disputes as to whether such an arbitration clause could still be attracted in view of the subsequent conduct on the part of the petitioner in contesting the civil suit pending before the Senior Civil Judge at Cuttuck after filing an application under Section 8 of the Act. I am of the considered opinion that various disputes arise between the parties out of and in connection with the agreement and, therefore, all these disputes are required to be adjudicated upon and decided through the process of arbitration by appointing an arbitrator.
9. It is also contended by the counsel appearing for the respondent that at the relevant time when he approached the civil court there was no amount due and payable by the respondent and, therefore, the arbitration clause is not applicable. The aforesaid submission is without any merit and is rejected for the simple reason that the petitioner herein claimed that certain amount in respect of the loan agreement is still outstanding and in that context also issued a notice claiming payment of the amount and therefore, when there is dispute between the parties the same is required to be adjudicated upon and resolved through the process of arbitration as stated in the loan agreement and not otherwise.
10. The counsel appearing for the respondent, however, drew my attention to two decisions. The first decision is Krishandas Parsram Ahuja and another v. Bhagchand Dwarkadas Nagdev and others, , and the other is Babulal Singhania v. Pridan Ojha, . I have perused the said judgments. Both the judgments have been rendered by the respective High Courts in the context of disputes arising under the Arbitration Act of 1940. The present disputes are governed by the provisions of the Arbitration and Conciliation Act of 1996. Therefore, ex facie the said decisions are distinguishable and the said decisions are not applicable to the facts and circumstances of the present case. Besides, this decision is being rendered by this Court and reference of the disputes is being made by this Court on the basis of and relying upon the decision of the Supreme Court in Konkan Railway Corporation Ltd (supra).
11. Accordingly, I appoint Hon'ble Mr. Justice A.B. Saharya, the retired Chief Justice of Punjab & Haryana High Court, as the Arbitrator to resolve all the disputes and differences between the parties. It shall be open to the learned Arbitrator to fix his own remuneration after discussion with the counsel appearing for the parties. The remuneration of the learned Arbitrator shall be borne by the parties in equal proportion.
12. Having so decided the petition under Section 11 of the Act, I am required now to deal with the petition filed under Section 9 of the Act. It is an admitted position that in terms of the loan agreement the respondent purchased the two excavators after availing the loan facility granted by the petitioner and used the same for its own use. Although at one stage, the petitioner repossessed one of the excavators in terms of the loan agreement between the parties, however, by obtaining an injunction from the Senior Civil Judge, Orissa, the respondent repossessed the said excavator and admittedly custody of both the excavators is now with the respondent. Section 9 of the Act provides and empowers the court to pass necessary Orders for preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement. Admittedly, the two excavators are the subject-matter of the arbitration agreement. The petitioner claims that dues in respect of the said excavators are still due and payable to the petitioner and, therefore, the interest of the petitioner is required to be protected and preserved during the pendency of the arbitration proceedings before the Arbitrator. I, therefore, find force in the submission of the learned counsel appearing for the petitioner. Counsel appearing for the respondent submits that the said two excavators are now in the custody of the respondent at Mangalore. Accordingly, I appoint Mr. Ritesh Kumar, Legal Co-ordinator, Commercial Business, Citifinancial, 21, LSC, 1st Floor, Arcon Plaza, Pushp Vihar, New Delhi-110062 (Tel.No. 26059501) as the Court Receiver who shall take possession of the two excavators and keep the same in safe custody without putting the same for any kind of use until further Orders to be passed on this petition under Section 9 of the Act which is pending and is now converted to a petition under Section under Section 17 of the Arbitration and Conciliation Act. All further questions and issues with regard to the custody ad preservation of the two excavators shall henceforth be dealt with by the learned Arbitrator in accordance with law by exercising his powers under Section 17 of the Act.
13. In case any police assistance is necessary to the Court Receiver for implementing the Orders passed by this Court he shall make a request of the nature to the appropriate police station where the aforesaid excavators may be lying and the police of the area concerned shall provide all assistance to the Court Receiver in taking custody and possession of the two excavators for the purpose in implementing this order.
14. It is made clear that the Order appointing the Court Receiver is made as an interim measure in Order to preserve and protect the two excavators and it would be open for the learned Arbitrator to pass any further or other Orders as he may deem fit and proper after hearing the learned counsel for the parties before him. None of the observations made herein would be deemed to be an observation made on the merits of the claims of the parties hereto.
15. At this stage, counsel appearing for the respondent states that the Order appointing the Court Receiver may be kept in abeyance as the respondent is ready and willing to furnish security as against continuation of possession of the two excavators of an amount of Rs. 15 lakhs pending final decision of the disputes between the parties. I find force in the submission of the counsel appearing for the respondent. In terms of the said prayer it is ordered that security for an amount of Rs. 15 lakhs shall be furnished by the respondent in this Court to the satisfaction of the Joint Registrar within three weeks failing which the Order appointing the Court Receiver shall be given effect to. In case the security is furnished by the respondent, the Order appointing the Court Receiver shall be kept in abeyance until further orders.
16. The parties shall appear before the learned Arbitrator on February 16, 2004.
17. A copy of this Order be given dusty to the counsel appearing for the parties.