Madras High Court
Cholamandalam Dbs Finance Ltd vs Sudheesh Kumar on 10 December, 2009
Bench: Prabha Sridevan, M.Sathyanarayanan
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 10.12.2009 CORAM : THE HONOURABLE MRS.JUSTICE PRABHA SRIDEVAN AND THE HONOURABLE MR.JUSTICE M.SATHYANARAYANAN O.S.A.No.362 of 2009 and M.P.No.1 of 2009 Cholamandalam DBS Finance Ltd., Rep. by its Assistant Manager Legal, K.Venkateswaran. .. Appellant -vs- Sudheesh Kumar .. Respondent Appeal against the order dated 15.10.2009 made in Appl.No.3162 of 2009 on the file of this Court. For Appellant : Mr.M.B.Gopalan For Respondent : Mr.K.Thilageswaran Assisted Court : Mr.Krishnan, S.C. Mr.S.Vasudevan J U D G M E N T
(Delivered by PRABHA SRIDEVAN, J.) This appeal has been filed against the order of the learned single Judge directing the appellant to hand over to the respondent the vehicle, viz., Chevrolet Tavera BS III bearing Registration No.KL-43-2829 with Engine No.31F42786 and Chassis No.MA6AB6G766HJ42343.
2.The appellant-company and the respondent-borrower entered into a loan agreement in respect of the above vehicle. The agreement provided for the resolution of dispute by arbitration. Article 11 of the agreement provides for re-possession by the company of the Asset of the company, as the vehicle is called, on occurrence of any of the events of default set out in Article 10 of the agreement and if the borrower failed to deliver the Asset, it was open to the company to enter any place where the Asset may be and to remove or take possession of the same.
3.The appellant filed Application No.1282 of 2009 for appointment of an advocate commissioner to seize and deliver the aforesaid vehicle. According to them, the respondent was due and payable a total sum of Rs.5,87,796/- under the agreement. The said amount should be paid in 36 monthly instalments. It is also alleged that there was chronic and wilful default and as on 13.3.2009, a sum of Rs.2,74,689/- was due towards arrears of instalments. It is stated that they were in the process of initiating arbitration proceedings. But, since they had the right of re-possession and since they feared that the vehicle would be subject to constant depreciation in value, wear and tear, the Court should appoint an advocate commissioner to seize and deliver the vehicle. An ex parte order was passed and the vehicle was seized by the learned Advocate Commissioner on 30.06.2009 at Ernakulam.
4.On 17.7.2009, the learned counsel for the appellant submitted to the Court that the vehicle had been seized and the application may be closed. Only the learned Advocate Commissioner was present in Court apart from the learned counsel for the appellant. The learned counsel for the respondent was neither present nor heard. The application was closed.
5.Thereafter, the respondent filed the present application, viz., A.No.3162 of 2009, wherein he has stated that he had been paying the instalments for the two vehicles, which he had purchased on loan, but due to recession, he could not make payments. He has also stated that the appellant had filed Arbitration O.P.No. 729 of 2009 under Section 9 of the Arbitration and Conciliation Act (for brevity 'the Act') before the District Court, Ernakulam, against the respondent and the guarantor and prayed for an order of attachment to attach the immovable property with a direction to furnish security and I.A.No.2857 of 2009 was also filed for interim attachment, which the District Court, Ernakulam had granted.
6.According to the learned counsel for the respondent, thereafter the respondent approached the regional office of the appellant at Cochin and by negotiation, arrived at a sum of Rs.3,20,000/- as one time settlement. But, even before the cheque could be furnished, the vehicle, viz., Chevrolet Tavera, which is the subject matter of this appeal, had been seized and only thereafter, he came to know of the order passed in the above application. The respondent contended that this Court had no territorial jurisdiction and that the appellant had suppressed the filing of the application under section 9 of the Act and also the order of attachment obtained from the District Court, Ernakulam. In these circumstances, he prayed for release of the vehicle.
7.In the application, a counter was filed by the appellant stating that the cause of action had not entirely arisen at Kerala and that it was open to them to file the application under Section 9 before this Court. The respondent was not appearing even before the Arbitrator, who had by then been appointed and who had entered upon the reference. The respondent's intention was only to drag on the matter. The learned counsel, therefore, prayed that some condition may be imposed for deposit before the vehicle is released.
8.The learned single Judge, after hearing the counsel, referred to the order of attachment obtained before the District Court, Ernakulam and held that since the attachment order is in force and the respondent's rights are protected, it is not necessary for the appellant to have the custody of the vehicle and accordingly, ordered the return of the vehicle. It is against this, the present appeal has been filed.
9.The learned counsel for the appellant submitted that the respondent is a chronic defaulter, that there were two agreements for two different vehicles and the present application under Section 9 is only for the Tavera vehicle, whereas the other filed before the District Court, Ernakulam, was for the Ikon vehicle and therefore, there was really no suppression and further submitted that this application was filed earlier. There are no malafides on the part of the appellant since the agreement provides for the right to re-possess the vehicle and even if this Court were to come to the conclusion that the vehicle should be returned, it should have been ordered only on terms.
10.The learned counsel for the respondent submitted that when the interests of the appellant are secured by the order of attachment before the District Court, Ernakulam, which is for the same amount as claimed here, it was not necessary for the vehicle to be seized.
11.The matter came up on 02.11.2009 and we elaborately heard the learned counsel for both sides on merits. Apart from the merits, we also requested the learned counsel to make their submission with regard to the correctness of the request to close the application without hearing the respondent. Several decisions of the Supreme Court, High Courts as well as foreign Courts have been produced before us with regard to the right of the financier to take possession of the vehicle. Since it involves a common question, other counsel who were present in Court also made their submissions.
12.1. In 1988-I-L.W.-109 (Mercantile Credit Corporation Ltd. Messrs. v. V.Amaravathi), the learned single Judge of this Court upheld the financier's rights to seize the vehicle and to sell it.
12.2. In 1993-I-MLJ-284 (Paramasivam v. The T.N. Indl. Invt. Corpn. Ltd.) the question before the Full Bench was whether under the State Financial Corporations Act, the non-issue of notice before hypothecated assets were seized, was opposed to principles of natural justice and the Full Bench held that there was no necessity for notice of seizure before the lorry was seized since "the corporation was only enforcing the terms of the contract and exercising its power under Clause 10 of the Hypothecation Deed".
12.3. In 1999-1-L.W.-267 (Sri Rama Machinery Corporation Limited, etc. v. Standard Chartered Bank, etc. & another), the plea of violation of principles of natural justice in failing to give prior notice before seizure of motor vehicle for default in paying the hire purchase instalments was negatived.
12.4. In 2006 (1) CTC 670 (The Managing Director, Orix Auto Finance (India) Ltd. v. Jagmander Singh), the Supreme Court held that if the agreement permitted the financier to take possession of the financed vehicle, there was no legal impediment from taking such possession and that the High Court cannot vary the agreed terms of agreement and lay down guidelines contrary to such agreement.
12.5. In 2007-1-L.W.-880 (Manager, I.C.I.C.I. Bank Ltd. v. Prakash Kaur & Others), the Supreme Court very strongly commented about the procedure adopted by the bank in removing the vehicle from the possession of the writ petitioner. The Supreme Court deprecated the practice of hiring recovery agents, who are musclemen and said that this practice should be discouraged and they declared that the bank which includes of such institutions "should resort to procedure recognised by law to take possession of vehicles in cases where the borrower may have committed default in payment of the instalments instead of taking resort to strong arm tactics".
13. The learned counsel for the appellant also referred to the creditors' rights of replevin actions, sometimes known as claim and delivery and referred to the judgment of the Supreme Court of United States also in 416 U.S. 600 (Mitchell v. W.T.Grant Co.), where the Supreme Court held that on an application of a creditor, seizure of movables subject to a security interest ordered without notice and duly executed, followed by a post seizure hearing is valid and not violative of due process.
14.The learned counsel for the appellant also submitted that this Court should take note of the fact that very often, the hirers even knock down the vehicle to put it out of reach of the creditors. The learned counsel gave a list of cases pertaining to two such institutions, where in spite of appointment of advocate commissioner, the application had to be closed since the Asset was not traceable. The learned counsel submitted that if, before the advocate commissioner went, notice had to be issued, then no goods/vehicle can ever be seized and therefore, the ex parte order was necessary to secure the interest of the financier. The learned counsel supporting the appellant also referred to the cases where a Mareva injunction was ordered and submitted that the principle underlying was where a debt is due and owing and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment, the Court had the jurisdiction to grant an interlocutory injunction so as to prevent him disposing of the assets and this could follow the asset wherever it is situate. He also referred to (1969) 3 All England Reported 1376, where it was held by the Chancery Division that after an ex parte injunction was granted, it was open to the Court to vary or modify the order of injunction.
15.Section 9 of the Arbitration and Conciliation Act reads as follows:-
9.Interim measures, etc., by Court. - A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a Court:-
(i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of the following matters, namely:-
(a) the preservation, interim custody or sale of any goods which are the subject-matter fo the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the Court to be just and convenient;
and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.
The requirement of section 9 is that the parties claiming the relief should show that the interim measure of protection is necessary for the preservation, detention or inspection of any property, which is the subject matter of the dispute in arbitration and it also lays down what directions the Court may give in order to make this power effective.
16.The principles based on which an order under Section 9 is passed are not very different from the principles based on which interim injunction under Order 39 Rule 1 of CPC is granted. The person applying should show prima facie case and should also establish the irreparable injury and also the balance of convenience and in case, where a vehicle is to be emergently seized, there should be averments to show why it is just and convenient to seize the vehicle. It is also well settled that the mere recitals of the words in the section is not sufficient. The application should make out a case for the Court to grant the interim measure of protection. Without these, the applicant may not be entitled to an ex parte order and the Court shall exercise its discretion while granting such an order. The party invoking Section 9 must also be able to satisfy the Court that the arbitral proceedings are actually contemplated or about to be initiated.
17.In fact, this is why in M/s.Sundaram Finance Ltd. v. M/s.NEPC India Ltd. (A.I.R. 1999 SC 564), the Supreme Court held that it was open to the Court to put the applicant on terms, which will ensure that arbitral proceedings will be commenced. In that case, the Supreme Court dealt with the scope of the orders under Section 9 under the 1996 Act. In the present case, the learned counsel for the respondent submitted that if notice is issued before the advocate commissioner is appointed, then the purpose for filing the application will be defeated and that is why they referred to decisions where it has been held that pre-seizure notice is not required. In the Sundaram Finance's case, the Supreme Court observed that "It is not unknown when it becomes difficult to serve the respondents. It was, therefore, necessary that provision was made in the Act which could enable a party to get interim relief urgently in order to protect its interest." and therefore, the Supreme Court held that it is not possible to interpret the word 'before' in Section 9 to mean that unless notice under section 21 is received by the respondent, no party would have a right to apply for interim measure. Therefore, it is clear that an ex parte order can be passed. In the same judgment, the Supreme Court has also referred to the power to grant Mareva injunction and held that "the power to grant an interim injunction under section 44 of the Act extends to the granting of a Mareva injunction in appropriate cases. It may also include granting an interim mandatory injunction, although the Court will be slow to grant an injunction which provides a remedy of essentially the same kind as is ultimately being sought from the arbitral tribunal". The Supreme Court held that if an application under section 9 is made "the Court will first have to be satisfied that there exists a valid arbitration agreement and the applicant intends to take the dispute to arbitration. Once it is so satisfied the Court will have the jurisdiction to pass orders under Section 9 giving such interim protection as the facts and circumstances warrant. While passing such an order and in order to ensure that effective steps are taken to commence the arbitral proceedings, the Court while exercising jurisdiction under Section 9 can pass conditional order to put the applicant to such terms as it may deem fit with a view to see that effective steps are taken by the applicant for commencing the arbitral proceedings."
18.In (2004) 3 SCC 155 (Firm Ashok Traders v. Gurumukh Das Saluja), the Supreme Court held that the order passed by the Court shall fall within the expression "an interim measure of protection" as distinguished from an all-time and permanent protection.
19.In (2007) 7 SCC 125 (Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd.), the Supreme Court had clearly held that "it is difficult to imagine that the legislature while enacting section 9 of the Act intended to make a provision which was dehors the accepted principles that governed the grant of an interim injunction". The Supreme Court again repeats and reinterates that "Section 9 itself brings in the concept of 'just and convenient' while speaking of passing any interim measure of protection. The concluding words of Section 9, "and the court shall have the same power for making orders as it has for the purpose and in relation to any proceedings before it" also suggest that the normal rules that govern the court in the grant of interim orders is not sought to be jettisoned by the provision. Moreover, when a party is given a right to approach an ordinary court of the country without providing a special procedure or a special set of rules in that behalf, the ordinary rules followed by that court would govern the exercise of power conferred by the Act."
20.While the reality that the respondent may refuse to receive notice cannot be ignored, at the same time, we must also remember the observations of the Supreme Court in Firm Ashok Traders's case (cited supra), that the creditors should not make the interim measure an permanent measure. The danger in closing the application without hearing the other side is that there is the possibility of an unscrupulous creditor obtaining an order for seizure, reporting to Court that the Commissioner has seized it. If the application is closed on such information and the creditor does not initiate the arbitral proceedings at all, then the Court would be doing a great injustice to the respondent. It is true, even thereafter, the borrower may be able to move the appropriate forum for remedy, but we would have caused injustice by closing the application without hearing him and no man shall suffer on account of an act of Court.
21. In fact, the learned Judges of the Supreme Court of United States in 416 U.S. 600 (Mitchell v. W.T.Grant Co.), referred to above, have held that when seizure of movables is ordered before notice and is duly executed and if it is followed by a post-seizure hearing, then such order is valid and not violative of due process. Therefore, what follows is that the post-seizure hearing ensures the adherence of the principles of fairness and non-arbitrariness.
22.What disturbed us in this case is that the application was closed even without hearing the respondent. If before the application was closed the respondent had been heard, he would have brought to the notice of the Court that an order of attachment had been obtained in the District Court of Ernakulam, in which case, the learned Judge might have modified or varied the order of injunction. We are not, for one minute, saying that an ex parte order of appointment of advocate commissioner shall not be granted. If the averments in the affidavit make out for such an order, then an ex parte order of appointment of advocate commissioner to go and seize the vehicle may be granted. But, on the same day, notice shall be ordered to go to the respondent so that after the vehicle is seized by the advocate commissioner, the respondent, on receipt of notice, will appear before Court. Then, after hearing both the parties, the Court can pass such orders as are necessary. We cannot rule out the possibility of a creditor moving an application under section 9 alleging chronic default when it is not so. So, when both parties are heard, the Court can assess whether the default is a chronic one or is a temporary one for reasons beyond the control of the borrower, and the Court may pass appropriate orders balancing the equities between the parties. It is not possible to do that if the application is closed without hearing the respondent.
23.Repeatedly the learned counsel for the appellant/ creditor said that their rights under the agreement provided for re-possession. We are not negating their rights under the law. All that we say is, when they come to Court and pray for an order from us, we are bound to issue notice to the other side to hear the other side before the matter is disposed of finally. If in spite of receipt of notice, the respondent does not appear we will hear it ex parte and pass orders. But, if we close the application without affording an opportunity to the other side, the order will cause grave injustice to one of the parties. It is for this reason that we decided to hear not only the learned counsel for the appellant but other counsel too, so that some guidelines can be laid down with regard to such applications.
24.The basic principle of natural justice is to hear the other side. Our system of jurisprudence stands on that. We cannot ignore that while rendering justice. Therefore, some guidelines shall be followed while dealing with application under section 9. This applies to seizure of vehicles alone, since we have not heard the submissions with regard to any other cases falling under section 9. This is strictly with regard to cases where the advocate commissioners are appointed to seize the vehicles and report to Court.
25.The guidelines are :
a) If the pleadings in the affidavit make out that it is just and convenient to grant interim orders, and if, prima facie, the balance of convenience is in favour of the applicant, then an ex parte order appointing an advocate commissioner may be passed, but simultaneously notice shall be ordered to go to the respondent indicating the date of hearing of the application. It is open to the learned counsel for the appellant to get permission of the Court to also serve private notice on the respondents personally at the time when the vehicle is seized. But, an affidavit must be sworn to by the Advocate Commissioner that the person who received the notice was authorised to do so and that it was not given to some third party who was not responsible or who was not authorised to acknowledge any court notice on behalf of the respondents;
b) After the advocate commissioner reports to the Court that the vehicle has been seized, it shall be in the custody of the applicant. This custody is on behalf of the Court, i.e., the applicant will be holding it in custodia legis.
c) Of course, if even after notice, the borrower does not appear or if it appears to the Court that the borrower is deliberately evading notice, then it is open to the applicant to pray for such reliefs as are necessary, which may even include the sale of vehicle and the matter may be heard ex parte and orders passed in exercise of discretion of Court.
d) The application shall not be closed without hearing the other side after notice is served. Before closing the application, the Court shall also ascertain whether the applicant has taken steps to initiate the arbitral proceedings. If the applicant has not done so, then orders shall be passed putting the applicant on terms as laid down in Sundaram Finance's case (cited supra), because section 9 depends on a close nexus with the initiation of arbitral proceedings;
e) As regards the expenditure incurred for keeping the vehicle in custody, the applicant shall bear it until the respondent is served and appears. After that, the Court shall hear the parties and pass orders.
f) The remuneration for advocate commissioners appointed by this Court shall be commensurate with the work done, since the financiers will shift this burden only on the already beleaguered borrower.
One other advantage in hearing the respondent before the closing of application is the clue that we get from Firm Ashok Traders' case [(2004) 3 SCC 155], cited supra, where the Supreme Court encouraged the parties to suggest a solution. If that is really possible, then even at the initial stage, the entire matter will come to a happy resolution. Therefore, it is not only in the interest of natural justice and fairness, but also as a pragmatic measure that we have laid down these guidelines.
26.In the case on hand, in the affidavit, no averments are made to justify interim order except to state that the vehicle will be subject to constant depreciation in value, wear and tear. There must be necessary pleadings to show that it is just and convenient to pass the interim measure of protection. This is clear from Adhunik Steels's case [(2007) 7 SCC 125], referred supra. Since the respondent himself says that there was an one-time settlement of payment of Rs.3,20,000/-, if that amount is paid to the appellant, then they shall release the vehicle. However, the learned counsel for the appellant denies there was such an one-time settlement. Therefore, the same shall be decided by the learned Arbitrator in the arbitral proceedings initiated by the appellant.
27.With the above observations, the Original Side Appeal is disposed of. No costs. Consequently, connected M.P. is closed.
(P.S.D.,J.) (M.S.N.,J.) 10.12.2009 Index : Yes Internet : Yes sra PRABHA SRIDEVAN, J.
and M.SATHYANARAYANAN, J.
(sra) O.S.A.No.362 of 2009 10.12.2009