Bombay High Court
Harvestdeal Securities Ltd vs Punjab National Bank on 8 March, 2016
skc 1 911-WP-346-16
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 346 OF 2016
Harvestdeal Securities Ltd. .. Petitioner
versus
Punjab National Bank .. Respondent
Mr. Chirag Mody with Mr. Jayesh Mestry i/b. RMG Law Associates for
petitioner.
Ms Jinal Gogri with Mr. Vikrant Makhare with Ms Rutuja Patil i/b.
Negandhi, Shah & Himayatullah for respondent.
CORAM: D. H. WAGHELA, C. J. AND
M. S. SONAK, J.
DATE : 8 MARCH 2016
ORAL JUDGMENT: (Per : M. S. Sonak, J.)
1] By this petition under Articles 226 and 227 of the Constitution of
India, the petitioner has challenged order dated 19 February 2015
made by the Debt Recovery Appellate Tribunal (DRAT).
2] In this case, the respondent - Punjab National Bank (PNB) has
instituted Original Application No. 100 of 2005 under section 19 of the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(RDDB) with the Debt Recovery Tribunal (DRT), Mumbai seeking
recovery of an amount of Rs.94,36,041/- on basis of certain
transactions, with which, we are not presently concerned.
3] On 7 March 2006, the petitioner filed detailed written statement,
1 of 15
skc 2 911-WP-346-16
urging inter alia that the claim of PNB is barred by limitation, untenable
on merits and in any case settled. After setting out their entire defence
on merits, in paragraph 30 of the written statement, the petitioner also
pleaded that the claim of PNB is not maintainable owing to the
arbitration clause between the petitioner and the PNB, due to which,
the Stock Exchange Mumbai Arbitration Forum, will have jurisdiction
to try and decide the Original Application.
4] The DRT, by cryptic order dated 9 September 2009, at a stage
when the matter was posted for final arguments, entertained the
preliminary objection raised by the petitioner and has held that the
parties are required to be referred to arbitration, as envisaged in the
contract note. On this basis, the DRT granted leave to PNB to
withdraw Original Application No. 100 of 2005 and to submit the
disputes to arbitration as envisaged in the contract note.
5] The PNB instituted Appeal No. 310 of 2009 before the DRAT,
which has, by the impugned order dated 19 February 2015, allowed
the appeal, set aside the DRT's order dated 9 September 2009 and
remitted the matter to the DRT for determining the liability of the
petitioner. Further, the DRAT after taking cognizance of the
circumstances that the claim of PNB for an amount of Rs.94,36,041/-
against the petitioner is pending since 27 February 1999, the
petitioner have been directed to deposit a sum of Rs.10,00,000/-
before the DRT, Mumbai, in order to show their bona fides.
6] Mr.Chirag Mody, learned counsel for the petitioner by relying
upon the decision of the Hon'ble Apex Court in the case of Ardy
International (P) Ltd. & Anr. vs. Inspiration Clothes & U & Anr.1 has
1 (2006) 1 SCC 417
2 of 15
skc 3 911-WP-346-16
submitted that the jurisdiction of the DRT was barred in view of the
arbitration clause contained in the contract notes exchanged between
the parties and the cognizance of such arbitration clause could always
have been taken note of by the DRT, even suo motu. Mr. Mody
submitted that in any case, the direction to the petitioner to deposit a
sum of Rs.10,00,000/- before the DRT, Mumbai, was clearly in excess
of jurisdiction and the DRAT was not at all justified in making the same
in the appeal instituted by PNB. For these reasons, Mr. Mody
submitted that the impugned order dated 19 February 2015 warrants
interference under Articles 226 and 227 of the Constitution of India.
7] Ms
Jinal Gogri, learned counsel for the respondent Bank
submitted that the view taken by the DRT in its order dated 9
September 2009 was patently unsustainable, being contrary to the
provisions contained in section 8 of the Arbitration and Conciliation Act,
1996 (1996 Act) as also, several decisions, which categorically provide
that the party objecting to the continuance of proceedings before a
judicial authority must, not later than when submitting his first
statement on the substance of the dispute, make a written application
before the judicial authority, enclosing along with the original arbitration
agreement or duly certified copy thereof. She submitted that in this
case no such application was ever made by the petitioner, rather, the
petitioner proceeded to file written statement in the matter, thereby,
waiving the right, if any, to seek reference to the dispute to arbitration.
Ms Gogri has submitted that the entire objective of the petitioner was
to protract the proceedings before the DRT and it is for this purpose
that the preliminary objection was raised at a stage when the matter
was taken up by the DRT for final arguments. She submitted that on
the basis of such objection, the petitioner has delayed the proceedings
in Original Application No. 100 of 2005, for over a decade. Taking into
3 of 15
skc 4 911-WP-346-16
consideration such conduct of the petitioner, Ms Gogri submitted that
the DRAT has rightly directed the petitioner to deposit amount of
Rs.10,00,000/-, as against the claims of Rs.94,36,041/- due since the
year 1999. Ms Gogri submitted that the petitioner, has abused the
judicial process and this is therefore, a fit case to dismiss this petition
with exemplary costs.
8] Rival contentions now fall for our determination.
9] In this case, we are satisfied that the DRT's order dated 9
September 2009 was contrary to the provisions contained in section 8
of the 1996 Act (as it was then applicable) as well as several decisions
holding the filed that reference in terms of section 8 of the 1996 Act
cannot be made unless, the predicates prescribed under the said
section are fulfilled by the party seeking such reference. The DRAT
was quite right in making the impugned order dated 19 February 2015
and setting aside the DRT's order dated 9 September 2009. There is
no legal infirmity in the impugned order dated 19 February 2015 made
by the DRAT.
10] In this regard, reference to section 8 of the 1996 Act is
necessary. The same reads thus :
"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 accompanied by the original
4 of 15
skc 5 911-WP-346-16
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."
[emphasis supplied]
11] In the present case, PNB instituted Original Application No. 100
of 2005 before the DRT on or about 12 June 2003 claiming an amount
of Rs.94,36,041/- from the petitioner. The petitioner, after almost three
years, filed a detailed written statement, raising several disputes on
merits. Therein, the petitioner has objected to the claim of PNB by
disputing liability to pay, by claiming settlement of accounts, by
claiming that the claim is barred by limitation and so on. In paragraph
30 of the written statement, the petitioner has also objected to the
maintainability of the original application owing to the arbitration clause
between the petitioner and PNB. The perusal of the written statement
leaves no manner of doubt that the same constitutes 'first statement
on the substance of the dispute' as expressed in section 8(1) of the
1996 Act. Even Mr. Mody, learned counsel for the petitioner, did not
dispute that the written statement filed by the petitioner on 7 March
2006 constitutes the first statement on the substance of the dispute.
There is no record of the petitioner, during the period between 12 June
2003 i.e. the date of institution of the original application and 7 March
2006 i.e. the date of filing a written statement, having made any written
application before the DRT accompanied by the original arbitration
agreement or a duly certified copy thereof before the DRT, urging
reference to arbitration. Even this position, was not disputed at the bar.
12] In view of the aforesaid factual position, the DRT exceeded
5 of 15
skc 6 911-WP-346-16
jurisdiction and in any case, was not at all justified in making the order
dated 9 September 2009 and granting leave to PNB to withdraw
original application No. 100 of 2005 and to submit the disputes to
arbitration. The DRT, was not at all justified in making such order at the
stage when the matter before the DRT was posted for final hearing. At
that stage, the DRT after taking into consideration significant
circumstance that the petitioner had at no stage made any written
application as contemplated by section 8 of the 1996 Act, and further,
taken part in the proceedings before the DRT by filing written
statement on 7 March 2006 and even thereafter, had no jurisdiction to
entertain the oral plea made by the learned counsel for the petitioner
that preliminary objection be decided and on the said basis the parties
be referred to arbitration. The DRAT in such circumstances was
entirely justified in making the impugned order dated 19 February 2015
and setting aside the DRT's order dated 9 September 2009.
13] The circumstances in which the judicial authority can refer the
parties to arbitration in terms of section 8 of the 1996 Act are subject-
matter of several decisions, both of the Hon'ble Supreme Court as well
as this Court. Reference to some of them would be apposite,
particularly, as we are satisfied that the petitioner has abused the
process of the court by insisting upon reference to arbitration, without
complying with the predicates of section 8 of the 1996 Act, only with a
view to derail the proceedings before the DRT, which were at the stage
of final hearing in the year 2009. By this, the petitioner has succeeded
in delaying the proceedings before the DRT instituted on 12 June 2003
by over 13 years.
14] In the case of P. Anand Gajapathi Raju vs. P.V.G. Raju
6 of 15
skc 7 911-WP-346-16
(dead)2, the Hon'ble Supreme Court has laid down the requirements
which the parties have to comply with, before the court can refer the
parties to arbitration under section 8 of the 1996 Act. The observations
in paragraph 5, read thus :
"The conditions which are required to be satisfied under sub-
sections (1) and (2) of S. 8 before the Court can exercise its
powers are :
(1) there is an arbitration agreement;
(2) a party to the agreement brings an action in the Court
against the other party;
(3) subject matter of the action is the same as the subject
matter of the arbitration agreement;
(4) the other party moves the Court for referring the
parties to arbitration before it submits his first statement
on the substance of the dispute."
[emphasis supplied]
15] In the case of Branch Manager, Magma Leasing and Finance
Limited & Anr. vs. Potluri Madhavilata & Anr.3, the Hon'ble Supreme
Court after quoting the text of section 8 of the 1996 Act, at paragraph
17 has analyised the position, thus :
"An analysis of section 8 would show that for its applicability,
the following conditions must be satisfied:
(a) that there exists an arbitration agreement;
(b) that action has been brought to the court by one party to
the arbitration agreement against the other party;
(c) that the subject-matter of the suit is same as the subject-
matter of the arbitration agreement;
(d) that the other party before he submits his first
statement of the substance of the dispute, moves the
court for referring the parties to arbitration; and
(e) that along with the application the other party
tenders the original arbitration agreement or duly certified
copy thereof."
[Emphasis supplied]
16] In the case of Booz Allen and Hamilton Inc. vs. SBI Home
2 2000 (4) SCC 539
3 (2009) 10 SCC 103
7 of 15
skc 8 911-WP-346-16
Finance Limited & Ors.4, the Hon'ble Supreme Court in the context of
the provisions contained in section 8 of the 1996 Act reiterated the
position that application seeking reference to arbitration has to be
made not later than when submitting the first statement on the
substance of the dispute. In this regard, the Hon'ble Supreme Court
has held that not only filing of the written statement in a suit, but filing
of any statement, application, affidavit by a defendant prior to the filing
of a written statement will be construed as 'submission of a statement
on the substance of the dispute', if by filing such statement /
application / affidavit, the defendant shows his intention to submit
himself to the jurisdiction of the court and waives his right to seek a
reference to arbitration.
17] This Court, in the cases of Garden Finance Limited vs.
Prakash Industries Ltd. & Anr.5, Pamvi Consultance Services Ltd.
vs. Global Syntex (Bhilwara) Ltd.6 and Ganesh Trading Company
& Anr. vs. Government of Maharashtra & Ors.7 has held that it is
mandatory for a party seeking reference under section 8 of the 1996
Act to make an application in writing before submitting his first
statement on the substance of the dispute and it is only then that the
judicial authority gets the jurisdiction to make reference under section
8 of the 1996 Act. Once a party submits his first statement on the
substance of the dispute i.e. on merits, it can be assumed that such a
party has submitted to the jurisdiction of the judicial authority and the
judicial authority thereafter ceases to have jurisdiciton to refer the
dispute to arbitration, unless of course, both the parties consent to the
making of such reference. In the case of Garden Finance Limited
(supra ) and Pamvi Consultance Services Ltd. (supra), this Court has
4 (2011) 5 SCC 532
5 2001 (4) Mh.L.J. 425
6 2004 (4) Mh.L.J. 748
7 2007 (4) Mh.L.J. 715
8 of 15
skc 9 911-WP-346-16
rejected the contention that an oral application suffices or that the
judicial authority can suo motu direct the parties to arbitration by
invoking the arbitral clause.
18] In the case of Atul Singh & Ors. vs. Sunil Kumar Singh &
Ors.8 the Supreme Court has ruled that even requirement of filing the
original agreement or the duly certified copy thereof along with the
application under section 8 of the 1996 Act is a mandatory
requirement. The observatiions in paragraph 19, read thus :
"19. There is no whisper in the petition dated 28-2-2005 that
the original arbitration agreement or a duly certified copy thereof
is being filed along with the application. Therefore, there was a
clear non-compliance with sub-section (2) of section 8 of the
1996 Act which is a mandatory provision and the dispute could
not have been referred to arbitration. Learned counsel for the
respondent has submitted that a copy of the partnership deed
was on the record of the case. However, in order to satisfy the
requirement of sub-section (2) of section 8 of the Act, Defendant
3 should have filed the original arbitration agreement or a duly
certified copy thereof along with the petition filed by him on 28-
2-2005, which he did not do. Therefore, no order for referring
the dispute to arbitration could have been passed in the suit."
19] In the facts and circumstances of the present case, it is quite
clear that there was no compliance with the predicates of section 8 of
the 1996 Act and therefore, the DRT's order dated 9 September 2009,
was clearly in excess of jurisdiction. Decision in the case of Ardy
International (P) Ltd. (supra) upon which reliance was placed by
Mr.Mody does not assist the petitioner. The main issue involved in the
said case was whether a civil court, under the guise of exercising
powers under section 8 of the 1996 Act can restrain the arbitral
proceedings from commencing or continuing. Even in paragraph 4 of
8 (2008) 2 SCC 602
9 of 15
skc 10 911-WP-346-16
the said decision, the Hon'ble Supreme Court has held that once the
opposite party objects to the application for interim reliefs in a suit
bringing to the notice of the court the existence of the arbitration
agreement, thereafter, the proceedings could have been continued
only within the parameters of section 8 of the 1996 Act and the
proceedings under section 8 can never result in an order restraining
arbitral proceedings. Based upon a stray sentence or a stray word, the
petitioner cannot purport to confer upon a judicial authority, jurisdiction
which is clearly not vested in it. Observations in a judgment, have
obviously to read in the context in which they are made.
20]
In the matters of precedents, it is necessary to see what were
the facts in the case in which the decision was given and what was the
point which had to be decided. No judgment can be read as if it is a
statute. A word or a clause or a sentence in a judgment cannot be
regarded as full exposition of law. As has been held by the Hon'ble
Supreme Court in the case of Union of India & Ors. vs. Dhanwanti
Devi & Ors.9, it is not everything said by a Judge whilst giving
judgment that constitutes a precedent. The only thing in a Judge's
decision binding a party is the principle upon which the case is decided
and for this reason it is important to analyse a decision and isolate
from it the ratio decidendi. According to the well-settled theory of
precedents, every decision contains three basic postulates - [i] findings
of material facts, direct and inferential. An inferential findings of facts is
the inference which the Judge draws from the direct, or perceptible
facts; [ii] statements of the principles of law applicable to the legal
problems disclosed by the facts; and [iii] judgment based on the
combined effect of the above. A decision is only an authority for what it
actually decides. What is of the essence in decision is its ratio and not
9 1996 (6) SCC 44
10 of 15
skc 11 911-WP-346-16
every observation found therein not what logically follows from the
various observations made in the judgment. Every judgment must be
read as applicable to the particular facts proved, since the generality of
the expressions which may be found there is not intended to be
exposition of the whole law, but governed and qualified by the
particular facts of the case in which such expressions are to be found.
It would, therefore, be not profitable to extract a sentence here and
there from the judgment and to build upon it because the essence of
the decision is its ratio and not every observation found therein. The
enunciation of the reason or principle on which a question before a
court has been decided is alone binding as a precedent. Thus
construed, the decision in case of Ardy International (P) Ltd.
(supra), cannot assist the petitioner who has failed to comply with the
predicates of section 8 of the 1996 Act.
21] Taking into consideration the manner in which the petitioner has
abused the process of the Court and delayed the proceedings before
the DRT by raising a belated and frivolous objection when the case
was posted for final heairng, we do not deem it appropriate to interfere
with the direction made by the DRAT in the matter of deposit of
Rs.10,00,000/- by the petitioner before the DRT, in order to show bona
fides. At the behest of such a petitioner, there is no case made out to
exercise equitable jurisdiction under Articles 226 and 227 of the
Constitution of India, in order to interfere with such direction. Rather,
this is a fit case for imposition of exemplary costs upon the petitioner
for having succeeded in derailing the proceedings before the DRT
which was instituted on 12 June 2003 for over 13 years. By this, the
petitioner virtually succeeded in frustrating the very objective of
enactment of the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (said Act) with regard to speedy disposal of such
11 of 15
skc 12 911-WP-346-16
matters.
22] In the case of Standard Chartered Bank vs. Dharminder
Bhohi & Ors.10 the Hon'ble Supreme Court, in the context of delay in
disposal of applications by DRT's and DRAT's, at paragraph 1 has
observed thus :
"Leave granted. The present appeal depicts a factual score
where this Court is constrained to say that delay in disposal of
the application by the Debts Recovery Tribunal and the appeal
by the Debts Recovery Appellate Tribunal have the effect
potentiality of creating corrosion in the economic spine of the
country. It exposits a factual expose which is not only
perplexing but ushers in a sense of puzzlement which in the
ultimate eventuate compels one to ask: "How long can the
financial institutions suffer such procrastination? How far the
public interest be put to hazard because of small, and
sometimes contrived indivudal interest? To what extent the
defaulters be given protection in the name of balancing the
stringent powers vested in the banks and the statutory
safeguards prescribed in favour of loanees? Even assuming
there are legal lapses and abuses, how long the statutory
tribunals take to put the controversy to rest being oblivious of
the fact that the concept of flexibility is insegregably
associated with valuation of any asset? One is bound to give a
wake-up call and we so do by saying "Tasmat Uttistha
Kaunteya", "Awake, Arise, 'O' Partha."
23] In the aforesaid decision, the Hon'ble Supreme Court has
emphasised upon the necessity of speedy disposal of matters by the
DRT and DRAT as such speedy disposal is the fundamental object of
the said Act and 'time factor' has inextricable nexus with the
sustenance of economy. In the same judgment, the Hon'ble Supreme
Court has explained that the purpose of enacting section 22 in the said
Act, was to ensure that the DRT and DRAT are not bogged down by
10 (2013) 15 SCC 341
12 of 15
skc 13 911-WP-346-16
undue procedural restraints, thereby stalling the speedy disposal of
such matters. In paragraphs 25 and 26, the Hon'ble Supreme Court
has observed thus :
25. Thus, the intendment of this legislation is for speedy
recovery of dues to the bank. In this backdrop, the
tribunals are expected to act with quite promptitude
regard being had to the nature of the lis and see to it that
an ingenious litigant does not take recourse to dilatory
tactics. It may be aptly noted that an action taken by the bank
under SARFAESI Act is subject to assail before the DRT and
a further appeal to the DRAT. Neither the DRT nor the
appellate tribunal can afford to sit over matters as that
would fundamentally frustrate the purpose of the
legislation. In the case at hand, we really fail to fathom what
impelled DRAT to keep on adjourning the matter and finally
dispose it by passing an extremely laconic order. It is really
perplexing. A tribunal dealing with an appeal should not allow
adjournments for the asking. It should be kept uppermost in
mind of the Presiding Officer of the tribunal that grant of an
adjournment should be an exception and not to be granted in a
routine and mechanical matter. In the case at hand, such a
delineation by the DRAT only indicates its apathy and
indifference to the role ascribed to it under the enactment and
the trust bestowed on it by the legislature. A curative step is
warranted and we expect that the Chairman and the members
of the DRAT shall endeavour to remain alive to the obligations
as expected of them by such special legislations, namely, the
SARFAESI Act and the RDB Act.
26. Be it noted, the principal purpose is to see that
recovery of dues which is an essential function of any
banking institution does not get halted because of
procrastinated delineation by the tribunal. It is worthy to
note that the legislature by its wisdom under section 22 of the
RDB Act has provided that the DRT and the appellate tribunal
shall not be bound by the procedure laid down by the Code of
Civil Procedure, but shall be guided by the principles of natural
justice and subject to the rules framed. They have been
conferred powers to regulate their own procedure as given
to them. It is so, for the very purpose of their
establishment is to expedite disposal of the applications
and the appeals preferred before them. They have the
character of specialized institutions with expertise and
13 of 15
skc 14 911-WP-346-16
conferred jurisdiction to decide the lis in a speedy
manner so that the larger public interest, that is, the
economy of the country does not suffer. But, a pregnant
one, in the case at hand DRAT did not dispose of the appeal
for four-and-a-half years. We can only say that apart from the
curative step the tribunal as well the DRAT have to rise to the
occasion, for delay in adjudication of these type of litigations
brings a long term disaster. Acute slumber shall not do.
(emphasis supplied)
24] There is yet another disturbing aspect of this matter. The DRAT
by the impugned order dated 19 February 2015 had directed the
petitioner to deposit an amount of Rs.10,00,000/- with the DRT within a
period of four weeks. Despite the circumstance that there was no
interim order made by this Court, the petitioner has not bothered to
deposit the said amount. The mere institution of a petition, does not
operate as a stay. Obviously, the petitioner has avoided compliance by
merely lodging this petition but not moving the same for obtaining
interim reliefs. Such conduct also constitutes an abuse of the process.
The petitioner is now directed to deposit the amount of Rs.10,00,000/-
within a period of four weeks from today before the DRT.
25] Since we are satisfied that the petitioner has abused the judicial
process by raising frivolous and unsustainable preliminary objection at
the stage when the matter was posted for final hearing before the DRT
and thereby succeeded in derailing proceedings for over a decade, we
deem it appropriate to dismiss this petition with costs computed at
Rs.10,000/- (Rupees Ten Thousand). The petitioner to pay such costs
to the respondent within a period of four weeks from today.
26] The DRT is directed to dispose of original application No. 100 of
2005 as expeditiously as possible and in any case within a period of
14 of 15
skc 15 911-WP-346-16
three months from the date of production of authenticated copy of this
order.
27] The parties to appear before the DRT on 28 March 2016 and
produce authenticated copy of this order.
28] All concerned to act on basis of authenticated copy of this order.
CHIEF JUSTICE
(M.S.SONAK, J.)
chandka
15 of 15
