Bombay High Court
Indepay Networks Pvt. Ltd. vs Indepay Networks Pvt. Ltd. on 25 November, 2013
Bench: S.J. Kathawalla
KPP 1 CHS 669 OF 2013
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
CHAMBER SUMMONS NO. 669 OF 2013
IN
SUIT NO. 294 OF 2013
1. Indepay Networks Pvt. Ltd. )
a Private Limied Company, incorporated )
under the Companies Act, 1956, and having )
its Registered Office at 15th Floor, )
Eros Corporate Tower, Nehru Palace, )
New Delhi-110 019 )
2. Rajib Saha
Managing Director of Indepay Networks
Pvt. Ltd., residing at K-1,Central Park-I,
)
)
)
Golf Course Road, Gurgaon-122 002, Haryana )...Applicants
(Orig. Defendants)
BETWEEN
1. Datamatics Software Services Ltd., )
a limited company incorporated under the )
Companies Act, 1956, and a 100% subsidiary )
of Datamatics Global Services Ltd., having )
its registered office at Knowledge Centre, )
Plot No. 58, Street No. 17, MIDC, )
Andheri (East), Mumbai-400 093 )
2. Datamatics Global Services Ltd. )
a limited Company incorporated under the )
Companies Act, 1956 and the parent company )
of Datamatics Software Services Ltd. )
having its Registered Office at Unit No. 117-120)
SDF IV, SEEPZ, Andheri (East), Mumbai-400 096)...Plaintiffs
Versus
1. Indepay Networks Pvt. Ltd. )
a Private Limied Company, incorporated )
under the Companies Act, 1956, and having )
its Registered Office at 15th Floor, )
::: Downloaded on - 27/11/2013 20:34:24 :::
KPP 2 CHS 669 OF 2013
Eros Corporate Tower, Nehru Palace, )
New Delhi-110 019 )
2. Rajib Saha )
Managing Director of Indepay Networks )
Pvt. Ltd., residing at K-1,Central Park-I, )
Golf Course Road, Gurgaon-122 002, Haryana )...Defendants
Mr. Virag Tulzapurkar, Senior Advocate, along with Mr. Anil Menon, instructed by
M/s. Anil Menon & Associates, for the Plaintiffs.
Mr. Ricab Chand, instructed by Mr. R.B. Sawant, for the Defendants.
CORAM: S.J. KATHAWALLA, J.
ig Order reserved on: 22
nd October, 2013
Order pronounced on: 25 November, 2013
th
ORDER:
1. The above Chamber Summons is taken out by the Defendant No.1 "to refer
the parties to the suit to arbitration as contemplated under the Arbitration
Agreement between the Plaintiff and Defendant No.1".
2. The Plaintiffs are Companies incorporated under the provisions of the
Companies Act, 1956 and carry on the business of software development,
information technology services and software services. Plaintiff No. 1 is the
subsidiary of Plaintiff No.2. Defendant No. 1 is a Company incorporated under the
provisions of the Companies Act, 1956 and is engaged in the business of financial
payments and transaction processing services. Defendant No. 2 is the Managing
Director of Defendant No. 1 and has executed a Deed of Personal Guarantee dated
20th January, 2012, guaranteeing repayment of the liability of Defendant No. 1 to the
Plaintiffs.
KPP 3 CHS 669 OF 2013
3. According to the Plaintiffs, in or about January, 2012, Defendant No. 1
approached the Plaintiff No. 1 and requested for loan facilities to fund Defendant
No.1's financial need to capitalize on certain new opportunities available to
Defendant No.1 at the relevant time. Pursuant to the discussions and negotiations in
that behalf, the Plaintiff No. 1 and Defendant No. 1 executed a Convertible Loan
Agreement dated 20th January, 2012 ("the Loan Agreement") by which the Plaintiff
agreed to lend upto Rs. 1,00,00,000/- (Rupees One Crore only) to Defendant No. 1
for the consideration and on the terms and conditions set out in the Loan Agreement.
Clause 2.1 (vi) (a) of the Loan Agreement provided that Defendant No. 1 would
mortgage all present and future movable and immovable properties of the
Defendant No.1 including all plant, machinery, furniture, fittings, equipment, book
debts, stocks, computer hardware and software and IP rights therein (defined therein
as the Mortgaged Assets) in favour of Plaintiff No.1. Clause 2.1 (vi) (b) provided
that Defendant No. 2 shall execute a personal guarantee in order to secure the
facility being granted by the Plaintiff No.1 to the Defendant No.1.
4. Pursuant to the said Loan agreement, Defendant No. 2 on the same day i.e. on
20th January, 2012, inter alia executed a personal guarantee agreement by which
Defendant No. 2 irrevocably and unconditionally guaranteed to the Plaintiff No. 1
the full and prompt payment of the Defendant No. 1's indebtedness including, but
not limited to the loan amount under the Loan Agreement. The terms of the
Agreement are as set out in the said Personal Guarantee Agreement. Though Clause
KPP 4 CHS 669 OF 2013
15 of the Loan Agreement provided that the disputes between the parties concerning
or connected with the interpretation or implementation of the Loan Agreement or
arising out of the Loan Agreement would be referred to arbitration, the Personal
Guarantee Agreement executed by and between the Plaintiff No.1 and Defendant
No.2 did not contain any such arbitration agreement.
5. Thereafter, by an Agreement dated 30 th January, 2012, called Master
Agreement for Projects ("the Services Agreement"), the Plaintiff No.2 agreed to
provide certain services to Defendant No. 1 for the consideration and on the terms
and conditions set out in the Services Agreement. Clause 26 of the Services
Agreement provides that the parties thereto shall refer their disputes arising out of
the said Services Agreement to arbitration under the provisions of the Arbitration
and Conciliation Act, 1996.
6. According to the Plaintiffs, the Defendant No.1 failed to make payments
under the said Loan Agreement as well as the Services Agreement and Defendant
No.2 having given a personal guarantee to make payments to the Plaintiffs also failed
to make the payments as agreed.
7. Upon failure of Defendant No.1 to pay its debts, the Plaintiffs have filed the
above Suit against Defendant Nos.1 and 2. Prayers (c) to (g) in the Suit pertain to
specific performance of the mortgage and enforcement of the mortgage. The same
are reproduced hereunder:
KPP 5 CHS 669 OF 2013
(c ) That this Hon'ble Court be pleased to order and direct
Defendant No. 1 specifically to perform in favour of the Plaintiff
No.1 the Loan Agreement, including, specifically, Defendant No.1's
obligation to create a mortgage of the said Assets in favour of the
Plaintiff, and to execute such documents as may be required for
performing the terms of the Loan Agreement in favour of the
Plaintiff No.1;
(d) that, for the aforesaid purpose, Defendant No. 1 be ordered
and decreed to do all acts, deeds, matters and things, procure all
consents, agreements, permissions and sanctions and execute all
documents as may be required for effectively performing the Loan
Agreement in favour of the Plaintiff No. 1;
(e) that, on such mortgage of the said Assets being created in
favour of the Plaintiff No.1, this Hon'ble Court be pleased to declare
that the amount payable by the Defendant to the Plaintiff No.1, as
set out in the Particulars of Claim at Exhibit M hereto is secured by
a valid and subsisting mortgage of the said Assets;
(f) That this Hon'ble Court be pleased to order and direct the
Defendant to pay the amounts due and payable to the Plaintiffs as
set out in the Particulars of Claim, Exhibit M hereto by such a date
as may be fixed by this Hon'ble Court for redemption of the
mortgage, failing which the mortgage of the said assets be enforced
by and under the orders of this Hon'ble Court by sale thereof and
further orders that the sale proceeds be paid over to the Plaintiffs in
satisfaction of its claim against the Defendants;
(g) That, in the event that of being any deficit in the amounts
recovered on sale of the said assets, a personal decree be passed
KPP 6 CHS 669 OF 2013
against the Defendants for repayment of such deficit to the
Plaintiffs;"
8. As set out hereinabove, the Defendants have taken out the above Chamber
Summons under Section 8 of the Arbitration and Conciliation Act, 1996, to refer the
parties to the Suit to arbitration as contemplated under the Loan Agreement between
the Plaintiff and Defendant No.1.
9. The Plaintiffs have submitted that the above Suit cannot be referred to
Arbitration since the subject matter of the Suit is not arbitrable, and also the subject
matter of the Suit and the parties cannot be bifurcated or split. Relying on the
decision of the Hon'ble Apex Court in Booz Allen and Hamilton Inc. vs. SBI Home
finance Ltd. and others1 the Plaintiffs have submitted that since by the present Suit
the Plaintiffs are seeking specific performance and enforcement of the mortgage, and
enforcement of a mortgage being an enforcement of a right in rem, the same will
have to be decided by this Court and not by an Arbitral Tribunal. The Plaintiffs have
pointed out that Defendant No. 2 has also executed a Personal Guarantee Agreement
wherein he has guaranteed repayment of the "Guaranteed indebtedness" of the
Defendants, but not limited to the amounts due under the Loan Agreement. The
Personal Guarantee Agreement does not contain an Arbitration Agreement and thus
there is no Arbitration Agreement to which Defendant No.2 is a party, therefore there
can be no question of referring the Suit against Defendant No. 2 to Arbitration.
Relying on the decision of the Hon'ble Apex Court in Sukanya Holdings Pvt. Ltd. vs.
1 (2011) 5 SCC 532
KPP 7 CHS 669 OF 2013
Jayesh H. Pandya and another 2, the Plaintiffs submitted that therefore in this case
neither the subject matter nor the parties can be split and the Chamber Summons
ought to be therefore rejected.
10. The Defendant No.1 has in support of the Chamber Summons, also relied on
the decision of the Hon'ble Apex Court in Booz Allen and Hamilton Inc. (supra) more
particularly paragraph 27 of the said judgment wherein it is held that, "An Agreement
to sell or an agreement to mortgage does not involve any transfer of right in rem but
create only a personal obligation. Therefore, if specific performance is sought either in
regard to an agreement to sell or an agreement to mortgage, the claim for specific
performance will be arbitral..." Relying on the decision of the Hon'ble Madras High
Court in the Chief Controller, Revenue Authority vs. Madras Fertilizers Ltd. 3 it is
submitted on behalf of Defendant No.1 that the essential characteristics of a
mortgage are transfer of interest in present and in specific immovable property. It is
submitted that in the present case admittedly there is no transfer of interest and
there is no mention in the Loan Agreement as to on which assets the mortgage is
specifically created. It is submitted that therefore the requirement of "transfer of
interest" in specific assets is absent in the Loan Agreement and therefore a mortgage
suit is not maintainable. It is further submitted on behalf of the Defendant No. 1 that
since there is a reference of a Guarantee Agreement in the Convertible Loan
Agreement and also a mention of the Loan Agreement in the Guarantee Agreement
and both the documents having been executed on the same day i.e. 20 th January,
2 AIR 2003 SC 2252
3 AIR 1975 Madras 360
KPP 8 CHS 669 OF 2013
2012, then it has to be construed that both form one agreement or the clauses of one
agreement have to be read into the other agreement by implication. It is therefore
submitted on behalf of Defendant No.1 that the above Chamber Summons be
allowed.
11. I have considered the submissions advanced on behalf of the parties and also
the case law relied upon by them. The Plaintiffs and Defendant No.1 executed a
Convertible Loan Agreement and Master Agreement for Projects (the Services
Agreement) wherein there are arbitration clauses at Clause 15 and paragraph 26
respectively. It is an admitted position that there is no mortgage created as of today.
The Plaintiffs have, as reproduced hereinabove, sought reliefs in terms of prayer
clauses (c) to (g) of the Plaint for specific performance of the Agreement to mortgage
and for enforcement of the mortgage when so created by and under a decree of this
Court. This is based on clause 2.2. 1 (vi) of the Convertible Loan Agreement
whereby Defendant No. 1 has expressly agreed to create a mortgage in favour of the
Plaintiffs.
12. Section 14 (3) (a) (i) of the Specific Relief Act states that the court may
enforce specific performance where the suit is for enforcement of a contract to
execute a mortgage or furnish any other security for securing repayment of loan
which the borrower is not willing to repay at once, provided that where only a part
of the loan has been advanced, and the lender is willing to advance the remaining
part of the loan in terms of the contract. The Plaintiff is therefore correct in
KPP 9 CHS 669 OF 2013
submitting that once the specific performance is ordered in their favour, the Court in
the very same suit can grant enforcement of the mortgage as sought for in prayer
clause (f). The suit is therefore a composite suit including for enforcement of the
mortgage. Those composite reliefs together form the subject matter of the suit. The
Plaintiffs are also correct in their submission that the relief for enforcement of the
mortgage is not arbitrable as such relief affect the rights of third parties who are not
parties to the Arbitration Agreement.
13.
Both the parties have relied on the decision of the Hon'ble Apex Court in Booz
Allen and Hamilton Inc. (supra). In the said case, the Hon'ble Supreme Court has
observed that a mere Agreement to sell or an Agreement to mortgage does not
involve any transfer of right in rem but creates only a personal obligation. It is
therefore correct that if only specific performance is sought either in regard to an
Agreement to sell or an Agreement to mortgage, the claim for specific performance
will be arbitrable. However, a mortgage is a transfer of right in rem. A mortgage suit
for sale of mortgaged property is an action in rem for enforcement of a right in rem.
A suit on mortgage is not a mere suit for money. A suit for enforcement of a
mortgage being the enforcement of a right in rem, will have to be decided by the
courts of law and not by the Arbitral Tribunal. Hence the present Suit filed by the
Plaintiffs seeking both specific performance and enforcement of the mortgage, being
a right in rem, will have to be decided by this Court and not by an Arbitral Tribunal.
Therefore, as held by the Hon'ble Supreme Court, the subject matter of the present
Suit (also being enforcement of the mortgage) is not arbitrable and Reference under
KPP 10 CHS 669 OF 2013
Section 8 of the Arbitration Act cannot be directed.
14. The Defendants have relied on the decision of the Hon'ble Madras High Court
in the case of the Chief Controller, Revenue Authority (supra). In the said case it was
observed that a floating charge does not involve any transfer of an interest in any
specific property or creation of a right in any specified property. The Defendants have
contended that the plaint or the Suit Agreements do not specify the mortgaged assets
and hence it be interpreted as a floating charge. The Plaintiffs have correctly
submitted that the said decision of the Madras High Court does not lend any
assistance to the Defendants because the same is irrelevant to the subject matter of
the present case. The judgment is under the Stamp Act wherein the question arose
whether the Trust Deed created a floating charge and whether the same can be
stamped as a mortgaged deed. In the instant case, no mortgage has yet been created
but the suit is for creation of a mortgage and thereafter its enforcement. The
Defendant No.1 has under the Loan Agreement [clause 2.1 (vi) (a)] agreed to
mortgage all present and future movable and immovable properties of Defendant
No. 1 including all plant, machinery, furniture, fittings, equipment, book debts,
stocks, computer hardware and software and IP rights therein in favour of Plaintiff
No.1. As submitted by the Plaintiffs, the identification of the mortgaged properties
will be done at the trial stage by leading evidence.
15. Again, Defendant No.2 has also executed a Personal Guarantee Agreement
wherein he has guaranteed repayment of the "guaranteed indebtedness" of the
KPP 11 CHS 669 OF 2013
Defendant but not limited to the amounts due under the Loan Agreement. The said
Personal Guarantee Agreement does not contain an Arbitration Agreement and the
Defendant No. 2 is not a party to the two Suit Agreements. Thus there is no
Arbitration Agreement to which Defendant No.2 is a party. The Plaintiffs have filed a
composite suit as per Order 1 of the Code of Civil Procedure, 1908, wherein the
Plaintiffs can club or combine several causes of action against the same Defendants.
16. The Hon'ble Apex Court has in its decision in Sukanya Holdings (supra),
inter alia observed as follows:
" 13. Secondly, there is no provision in the Act that when the subject
matter of the suit includes subject matter of the arbitration agreement
as well as other disputes, the matter is required to be referred to
arbitration. There is also no provision for splitting the cause or parties
and referring the subject matter of the suit to the Arbitrators.
17. The relevant language used in S. 8 is "in a matter which is the
subject matter of an Arbitration Agreement" Court is required to refer
the parties to arbitration. Therefore the suit should be in respect of "a
matter" which the parties have agreed to refer and which comes within
the ambit of Arbitration Agreement. Where, however, a suit is
commenced - "as to a matter" which lies outside the Arbitration
Agreement and is also between some of the parties who are not parties
to the arbitration agreement, there is no question of application of S.
8. The words "a matter" indicates entire subject matter of the suit
should be subject to Arbitration Agreement.
18. The next question which requires consideration is even if there is
no provision for partly referring the dispute to arbitration, whether
such a course if possible under Section 8 of the Act? In our view, it
would be difficult to give an interpretation to Section 8 under which
KPP 12 CHS 669 OF 2013
bifurcation of the cause of action that is to say the subject matter of
the suit or in some cases bifurcation of the suit between the parties
who are parties to the arbitration agreement and others are possible.
This would be laying down a totally new procedure not contemplated
under the Act. If bifurcation of the subject matter of a suit was
contemplated, the legislature would have used appropriate language to
permit such course. Since there is no such indication in the language,
it follows that bifurcation of the subject matter of an action brought
before a judicial authority is not allowed.
19. Secondly, such bifurcation of suit in two parts, one to be decided
by the arbitral tribunal and other to be decided by the Civil Court
would inevitably delay the proceedings. The whole purpose of speedy
disposal of dispute and decreasing the cost of litigation would be
frustrated by such procedure. It would also increase the cost of
litigation and harassment to the parties and on occasions there is
possibility of conflicting judgments and orders by two different
forums."
The Plaintiffs are therefore correct in their submission that in the present case
neither the subject matter nor the parties can be split. There is no scope for
referring the question of enforcement of the mortgage to Arbitration, in view of the
Supreme Court judgment in Booz Allen (supra). The question of referring the suit to
Arbitration against Defendant No. 2 cannot arise as there is no arbitration agreement
with Defendant No. 2. Hence, on either count a reference to Arbitration under
Section 8 of the Arbitration and Conciliation Act, 1996 cannot be directed.
KPP 13 CHS 669 OF 2013
20. In view therefore, the above Chamber Summons is dismissed.
(S.J. KATHAWALLA, J.)
