M/S. Indusind Bank Ltd. vs National Highways Authority Of ...
2009 Latest Caselaw 1926 Del

*          HIGH COURT OF DELHI : NEW DELHI

                         A.A.P. No.2/2007

     %                Judgment reserved on :       5th February, 2009

                      Judgment pronounced on :         8th May, 2009

     M/s. Indusind Bank Ltd.                         ...Appellant
                     Through : Mr. V. Sesagiri, Adv.

                                            Vs.

     National Highways Authority of India & Anr.    ..... Respondents
                  Through :    Mr. Sandeep Sethi, Sr. Adv. with
                               Mr. Tarun Dua and Mr. Abhishek,
                               Adv.

Coram:

HON'BLE MR. JUSTICE MANMOHAN SINGH

1. Whether the Reporters of local papers may
   be allowed to see the judgment?                                Yes

2. To be referred to Reporter or not?                             Yes

3. Whether the judgment should be reported                        Yes
   in the Digest?

MANMOHAN SINGH, J.

1. The appellant had filed the present appeal under Section

37[2] of the Arbitration and Conciliation Act, 1996 (hereinafter referred

to as the „Act‟) assailing the order dated 03.07.2007 passed by the

Arbitral Tribunal whereby the application of the appellant for its

impleadment under Order 1 Rule 10 CPC read with Section 17 of the

Act was dismissed.

2. It is the case of the appellant that the respondent no.2, i.e.

M/s. Raja Projects International Limited, had entered into hire-purchase

agreement with the appellant in 2000. The appellant raised invoices to

the tune of Rs.9,91,41,722/- on the respondent no.2 herein.

3. Due to the failure of the respondent no.2 to pay the said

amount raised in the invoices, the appellant sent a legal notice to the

respondent no.2 claiming the said amount. In 2002, the appellant had

initiated the arbitration proceedings in terms of clause 16 of the

arbitration agreement against the respondent no.2. Simultaneously, the

appellant also filed an application under Section 9 of the Act for interim

measure before the Second Additional Chief Judge, C T Civil Court,

Hyderabad being O.P. No.2187/2002. In October‟2002, the appellant in

the said petition filed an application being IA no.3122/2002 for

appointment of Receiver to take possession of the plant and machinery

situated at Lucknow-Kanpur Section of National Highway no.25, which

was allowed by the court vide order dated 28.10.2002.

4. The respondent no.1 herein/claimant filed a petition for

impleadment under Section 9 before the C T Civil Court, Hyderabad on

the ground that the respondent no.2 herein has defrauded the respondent

no.1 and, therefore, the respondent no.1 is the owner of the property

belonging to the appellant.

5. The respondent no.2 did not appear despite service of notices

from the Arbitrator in arbitration proceedings initiated by the appellant.

In the absence of the respondent no.1, the sole Arbitrator proceeded

against the respondent no.1 ex parte and rendered the award dated

09.07.2003.

6. The contention of the appellant is that the respondent no.1

was fully aware of the fact that the plant and machinery presently lying

at two sites at the Lucknow-Kanpur Section of National Highway no.25

are financed by the appellant and without the consent of the appellant,

the respondent no.2 could not have pledged or charged the said plant

and machinery nor could have filed the petition under Section 9 of the

Act before this court against the respondent no.2 being OMP

no.429/2002.

7. In the said petition filed by the respondent no.1 against the

respondent no.2, the status quo order was passed. This court also

appointed Shri Balram Chopra, Registrar of this court, as Court

Receiver vide order dated 06.12.2004 to take the symbolic possession of

the plant and machinery lying at the two sites. The said order of this

court was complied with by the Court Receiver, who had also filed his

report dated 25.01.2005. Vide order dated 20.07.2005 this Court

disposed of the OMP no.429/2002 with the direction to the parties

therein including the appellant to approach the Arbitral Tribunal before

which the arbitration proceedings were already pending qua the claim of

the respondent no.1 against the respondent no.2 for seeking appropriate

relief.

8. In view of the fact that the matter was being remanded back

to the Arbitral Tribunal, this court observed that the appellant may also

approach the Arbitral Tribunal for permission to be heard in the matter

subject to any objection that may be raised by the parties to the

arbitration agreement. It was made clear that the order dated 20.07.2005

does not preclude the appellant from taking any other steps that may

have also been taken to protect its interests.

9. The respondent thereafter approached the Arbitral Tribunal

for further proceedings and on the other hand the appellant filed the

appeal before the Division Bench of this court against the order dated

20.07.2005. The said appeal was dismissed as withdrawn on

04.09.2006 and the appellant was directed to approach the Arbitral

Tribunal.

10. In September‟2006, the appellant approached the Executing

Court at Gurgaon for grant of precept for attachment of plant and

machinery at two sites at Lucknow-Kanpur Section of National

Highway no.25 on the basis of award passed in its favour and against

the respondent no.2 herein.

11. The Executing Court, Gurgaon, on 08.09.2006 issued precept

to the District Judge at Unnao and Orai for attaching the properties.

However, after expiry of the period under Section 46 of the CPC, the

appellant filed an application for extension of precept order before the

Executing Court which according to the appellant is still pending. The

appellant submits that the learned District Court, Unnao [Lucknow] on

04.09.2006 was pleased to attach the plant and machinery described in

Schedule A of the Court Receiver‟s report.

12. In October‟2006 the appellant came to know that the Arbitral

Tribunal vide its interim order dated 03.07.2006 appointed Shri P D

Aggarwal as Local Commissioner to take over the symbolic possession

of the plant, equipment and other stores etc. from Shri Balram Chopra,

Court Receiver appointed by this court and directed Shri P. D. Aggarwal

to conduct the sale procedure of the said plant and equipment etc.

13. Aggrieved by the said order dated 03.07.2006, the appellant

herein preferred an application under Section 17 of the Act seeking

stay of the sale proclamation of the plant and machinery etc. lying at the

two sites at Lucknow-Kanpur Section of National Highway no.25 and

the appellant also moved an application under Order 1 Rule 10 CPC for

impleading the present appellant bank as a necessary party to the

arbitration proceedings before the Arbitral Tribunal. Vide the

impugned order dated 03.07.2007, the application of the appellant was

rejected.

14. The respondent no.1 questions the maintainability of the

present appeal on the ground that under Section 37(2)(b), an appeal lies

to a court from an order of the arbitral tribunal granting or refusing to

grant an interim measure under Section 17 of the Act. It is argued that

the appellant was neither a party to the Arbitration Agreement nor ever

impleaded as a party, therefore, the dismissal of an application under

Order 1 Rule 10 CPC cannot be appealed under Section 37(2)(b) of the

Act.

15. Mr. Sandeep Sethi, learned Senior counsel for the

respondent no.1 , strongly placed reliance upon the case of Smt. Kanta

Vashist & Ors. v. Shri Ashwani Khurana -- MANU/DE/0380/2008

wherein it was held that:-

"........An appeal against the order of Arbitrator was filed by the applicants and this court had observed that no appeal against the order of Arbitrator, turning down the request for impleadment of companies lies. I consider that Section 9 of the Arbitration and Conciliation Act is applicable only interse between the parties of the Arbitration Agreement."

16. The learned counsel for the respondent further argued that

the appellant is guilty of forum shopping. The appellant has already

approached the District Court, Gurgaon for seeking attachment of the

property lying at the site of the construction. On 4th October, 2006, the

Gurgaon Court passed an order to attach the plant and machinery.

Thereafter the appellant filed an application before the Arbitral Tribunal

for stay of sale proclamation which was admitted on 6th October, 2006.

17. It is further contended by the respondent that the appellant is

not a party to the arbitration agreement between respondent nos. 1 and 2

and therefore they could not have been impleaded by the arbitral

tribunal which rightly dismissed its application under Order 1 Rule 10

CPC. A person who is not a party to the arbitration agreement cannot

claim any right before the Arbitral Tribunal and cannot be impleaded as

a party. In this regard reference is made to the case of First

International Line S.A. Panama v. Chokhani International Ltd.;

2003 (3) Arb. LR 225 (Madras) (DB) wherein it was observed that:-

"Once the first respondent comes out with the clearest possible stand that it had its claim only against the second respondent and once there is an agreement of arbitration between the first respondent and the second respondent, the appellant would be a total stranger to the affairs even if the appellant is the owner of the vessels."

18. He also referred to the case of National Highways

Authority of India v. China Coal Construction Group Corpn. - AIR

2006 Delhi 134, whereby a similar issue was decided by this Court and

it was held that:-

".......it becomes clear that the intervener has no privity of contract with NHAI. It is also clear that the intervener is not a party to the arbitration proceedings. Section 9 of the Act is with reference to arbitral proceedings just as the intervener cannot be a party in the arbitral proceedings pending between NHAI and China Coal, it has no locus standi in the present proceedings. The interim orders that may be passed under Section 9 or Section 17 are with respect to the parties to the arbitration and in connection with the subject matter thereof. As such, the intervener‟s application under Order 1 Rule 10 cannot be allowed.............."

19. In the case of Reliable Finance Corpn. Pvt. Ltd. v. Ajoy

Pal Singh; ILR (1987) 1 Del 267, this Court dismissed an application

for impleadment while holding that the applicant who is not a party to

the agreement and who has not claimed any right under the agreement

cannot be impleaded as a party.

20. Again in the case of Pawan Kumar Jain v. Parduman

Jain; ILR (2005) 2 Del 397, it was held that a person who is not a party

to arbitration agreement cannot be impleaded as necessary party to

arbitration proceedings.

21. Recently, this Court in the case of J.L. Kapur v. Burmah

Shell Co-operative Housing Society (DB); 2008 (103) DRJ 527 held

that as the NDMC was not a party to an arbitration agreement, it cannot

be made a party to arbitration proceeding between petitioner and

respondent-society.

22. In the case of Sethi Construction Co. vs. Chairman and

Managing Director, NTPC and another, 2002 (65) DRJ 732, this

Court refused to appoint an arbitrator vis-à-vis NTPC holding that there

was no arbitration agreement between NTPC and Sethi Construction Co.

23. Again in the case of M.M. Aqua Technologies Limited vs.

Wig Brothers Builders and Engineers Ltd and another2001(3)

Arbitration Law Reporter 301 (Delhi), this court held in Para 10 as

under:-

"10. ......Arbitration is distinguishable from other clauses in the contract. The other clauses set out the obligations which the parties have undertaken towards each other binding them, but the arbitration clause does not impose on one of the parties an obligation towards the other. It embodies an agreement of both the parties with consensus ad idem that if any dispute arises with regard to the obligations undertaken therein which one party has undertaken towards the other, such a dispute shall be settled by Tribunal of their own constitution. It must be construed according to its language and in the light of the circumstances in which it was made."

It was further held in paragraph 11 that:

"11. From the foregoing discussion it is clear that to be a binding arbitration agreement between the parties, the same must be in writing and the parties should have specifically agreed to settle their disputes by arbitration. An arbitration agreement cannot be inferred by implication....."

24. It is also contended by the respondent that no property except

the Hot Mix Plant on which the appellant claims the right in the appeal

is lying at the site as per the report of the local commissioner of which

attachment has been sought by the appellant before Gurgaon Court.

25. It is also submitted that during the arguments when this

aspect was brought to the notice of this Court, the appellant agreed to

concede that if this one property is handed over to it, the appellant is

ready and willing to forgo its alleged claim over the other properties

lying at site.

26. It is alleged by the respondent that the appellant never

exercised any rights over the said properties in the arbitration. The

award passed by the arbitrator between the appellant and respondent

No.2 was only a money decree and never adjudicated any rights of the

appellant over the said properties.

27. It is submitted by the respondent no.1 that the agreement

between respondent No.1 and 2 has been executed on 12 th August, 1999

and Hire Purchase Agreement between respondent No.2 and appellant

was executed in the months of November or December, 2000 or

February, 2001 or January, 2002. The respondent no. 1, therefore, has a

prior right in time over the said properties than the appellant.

28. It is alleged that the appellant in October, 2002 filed an

application in Hyderabad High Court under Section 9 of the Act for

appointment of receiver to take possession of the plant and machinery

situated at Lucknow-Kanpur Highway. Vide order dated 28th October,

2002, the Advocate-Commissioner was appointed to take possession of

the plant and machineries. However, the possession could not be taken

by the Advocate -Commissioner as the workers of the respondent

obstructed.

29. The respondent No.1 referred to Clause 61.1 of the Contract

dated 12th August, 1999 between the respondent No.1 and respondent

No.2 by virtue of which the respondent No.1 becomes the owner of the

property since the contract was terminated in October,2002. The said

clause is reproduced as under:-

"61.1 All materials on the Site, Plant, Equipment, Temporary Works and Works are deemed to be the property of the Employer, if the Contract is terminated because of a Contractor‟s default."

30. The appellant submits that though under Section 19 of the

Act, the Arbitral Tribunal is not bound by the Code of Civil Procedure,

sub-clause 3 of Section 19 of the Act empowers the Tribunal to adopt

its own procedure which it considers appropriate for conducting the

Arbitration proceedings. It is alleged that the appellant is the owner of

the plant and machinery financed to the respondent, vide order dated 6 th

December, 2004 passed by this Court in application for impleadment.

31. It is argued by the learned counsel for the appellant that

when the Act stipulates that the Arbitral Tribunal is not bound by the

Code of Civil Procedure as well as Indian Evidence Act, the same does

not preclude the Arbitral Tribunal from applying the principles as

enunciated under the Civil Procedure Code while conducting the arbitral

proceedings.

32. The next contention of the appellant is that the term "party"

as used in section 2(1)(h) of the Act ought not to be construed narrowly

and should be given a wider /liberal interpretation to accommodate the

legitimate rights, interest and claims of the party. It is submitted that if

the appellant was not made a party to the Arbitration proceedings, the

legitimate rights, interests and claims of the appellant would suffer

grave prejudice and irreparable loss, damage and injury. He relied upon

the judgment of Chennai Container Terminal Pvt. Ltd. v. Union of

India, 2007 (3) Arb. LR 218 (Mad) to contend that under Section

2(1)(h), the import of the provision can be judicially expanded if the context

so warrants. In this case Government of India, who was not a signatory to

the Arbitration agreement was allowed to challenge the impugned award

passed by the learned Arbitrator. If a person non-party to an arbitration

agreement is permitted to challenge an award that purports to deal with a

subject matter in respect whereof the person non-party claims certain

legitimate rights or interest, then such person non-party ought also to be

heard in such arbitration proceedings in respect of his rights and interests.

33. The learned counsel for the appellant also relied upon Section

9(2)(a) of the Act wherein under the special circumstances, the party can be

impleaded as a necessary party. The term „party‟ as used in Section 9 of the

Act shall have the same meaning as ascribed to the term „party‟ in Section

2(h) of the Act. If that being so, the appellant bank upon being impleaded

as a party in the Section 9 application would be treated as a „party‟ within

the meaning of Section 2(h) of the Act.

34. It is argued that non exercise of the right provided under Clause

2(h) of the agreement does not take away the ownership right of the

appellant bank over the subject property.

35. It is further argued that the judgment relied upon by the

respondent in the matter of National Highway Authority of India vs.

China Coal Construction Group Corporation; 127(2006)DLT766, is not

applicable to the facts of the present case as in the said case, this Court

denied the intervener from being impleaded as a party to the Section 9

Application on the ground that the intervener had no privy to the arbitration

agreement.

36. The appellant prayed for setting aside the impugned order of

the learned Arbitral Tribunal and to take possession of the plant and

machineries lying at Orai and Unnao (Kanpur) from the Local

Commissioner appointed by the Learned Arbitral Tribunal.

37. In the impugned order passed by the Arbitral Tribunal on 3 rd

July, 2007, the learned Arbitrator has dealt with the submissions of the

appellants that though vide order 6th December, 2004 the appellant bank

is impleaded in the said proceedings under Section 9 of the Act, but at

the same time it was observed in the said order, it ought not to be

construed to mean that there is an arbitration agreement between NHAI

and Ashok Leyland Finance Ltd. (name changed to M/s. Indusind Bank

Ltd.). The appellant bank, , on 4th September, 2006 withdrew the appeal

filed against the order dated 20th July, 2005 wherein while disposing of

the application under Section 9 of the Act M/s. Ashok Leyland Finance

Ltd. was given the liberty to approach the arbitrators for permission to

be heard, which will be subject to any objection that may be raised by

the parties to the arbitration agreement.

38. The Arbitral Tribunal made the following observation while

dismissing the application of the appellant bank for its impleadment.

" 6.4. Section 2(h) of the Act defines the party and reads as under:-

„Party‟ means a party to an Arbitration Agreement. The present Arbitration Agreement is between M/s. NHAI and M/s. Rana Projects International Limited. The Applicant Bank is not a party to the same.

It becomes clear that the Applicant Bank has no privity of contract with NHAI.

6.5. Further, as per the contract between NHAI and M/s. Rana Projects International Limited, all the plants & machinery brought

by the respondents for the project fall under the category of Contractor‟s equipment and it does not speak of ownership. The ownership of the plant & machinery is of no consequence so far as the present contract is concerned. The plant & machinery would all the same be known as Contractor‟s equipment whether it was owned or hired by the Contractor. The present Contract cannot be involved in resolving disputes between the Applicant bank and M/s. Rana Projects International Limited. It is for the Applicant Bank to sort out its disputes with M/s. Rana Projects International Limited separately.

6.6. Accordingly, we are of the unanimous opinion that the Application of the Applicant Bank under Order 1 Rule 10 CPC cannot be allowed."

39. Apparently the dispute between the parties in the instant case

relates to the title of the machineries lying at the two sites of the

National Highway No.25 of the Respondent No.1 which the Appellant is

claiming to be its own. It is the admitted fact that the award dated 9th

July, 2003 which was passed ex parte is already in favour of the

Appellant who has already approached the Gurgaon court for grant of

precept for attachment of plant and machinery lying at the site and the

said court vide order dated 4th October 2006 has already attached the

plant and machinery and order in this respect has already been obtained

by the Appellant. The respondent No.1is contesting the said attachment

orders. Consequently the Appellant is not a party to the arbitration

agreement between respondent No.1 and 2 and in view of the well

settled law on this aspect as referred in Paras 17 to 23 of this judgment,

the appellant is not entitled to be impleaded as a party to the arbitration

agreement. Therefore, the Arbitral Tribunal has rightly dismissed the

application of the Appellant.

40. The argument addressed by the learned counsel for the

Appellant has no force as in the petition filed by respondent No.1 before

this court being OMP No.429/02 under Section 9 of the Act, the

appellant was impleaded as a party but at the same time while disposing

of the said OMP by order dated 20th July, 2005 a direction was given to

the parties to approach the arbitrator for further orders with regard to

any interim measure as the court has observed in its order that the

Finance Company M/s. Ashok Leyland Finance Ltd may approach the

arbitrators for permission to be heard in this matter. It is clearly

mentioned that this will, of course, be subject to any objection that may

be raised by the parties to the arbitration agreement. It was also made

clear that this order does not preclude M/s. Ashok Leylands Finance Ltd

from taking any steps that it may have already taken to protect its

interest. The Appellant thereafter filed an appeal against the said order

dated 20th July, 2005. The Appeal was also dismissed as withdrawn on

4th September 2006. In the same month, the Appellant approached the

executing court at Gurgaon to grant the precept for attachment of plant

and machinery at the two sites on the basis of the awards in its favour

and against respondent No.2 herein. The order was issued in favour of

the Appellant in this regard. The contention of the Appellant is merit-

less that the judgment referred by respondent No.1 has no application to

the facts and circumstances of the present case as the term "party" as

used in Section 2(1)(h) of the Act should not be construed narrowly and

the court should give a wider and liberal interpretation to accommodate

the legitimate rights, interests and claims of the parties. Learned

counsel for the Appellant has referred the judgment of Chennai

Container Pvt Ltd vs. Union of India 2007(3) ARL Page 418

(Madras) in support of his submission wherein Section 2(h) has been

interpreted by the Madras High Court. The facts and circumstances in

this case are not similar to the facts of the present case. The judgment

referred in Paras 18 to 23 of my judgment are directly applicable to the

present case and, therefore, this decision referred by the learned counsel

for the Appellant is distinguishable. I also do not agree with the

contention of the learned counsel for the Appellant that the said

judgments are not applicable as referred by respondent No.1.

41. I do not find any reason to disturb the findings of the learned

Arbitral Tribunal. The order of Arbitral Tribunal under Order 1 Rule 10

cannot be reconsidered by this Court on merits. In view of settled law

that a party who is not a party to the arbitration agreement cannot be

impleaded as a party in the arbitral proceedings, I find no force in the

contentions of the appellant bank. The appeal is hereby dismissed.

MANMOHAN SINGH, J.

MAY 08, 2009 sa