Madras High Court
M/S.Shriram City Union Finance ... vs M/S.Sambhav Infrastructure ... on 24 June, 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 24.06.2021
CORAM
THE HON'BLE MRS.JUSTICE PUSHPA SATHYANARAYANA
A.Nos.1390 and 1440 of 2017,
4186, 6327, 7745, 8880 of 2018,
2474, 2475, 2762, 2765 to 2767, 3063,
3242, 3244, 3246, 3268, 3325, 4207 and 5190 of 2019
A.No.1390 of 2017 :
M/s.Shriram City Union Finance Limited
No.123, Angappa Naicken Street,
Chennai, rep. by its Authorized Signatory,
Ms.C.Subha .. Applicant
Vs.
1. M/s.Sambhav Infrastructure Private Limited,
No.601, Pinnacle, Opp. To Royal Orchid,
AUDA Garden, Prahlad Nagar,
Ahmedabad, Gujarat-380 015.
2. Mr.Mihir Pravinchandra Desai,
A-5, Uplav Cooperative Housing Society Ltd.,
B/H Jawahar Nagar, Sarkhej Road,
Ahmedabad, Gujarat-380 007.
3. Mr.Mohanbhai Ranchhodbhai Makwana,
Flat No.C-1002, 10th Floor, Block-C,
Stavan Avisha, Near Seema Hall,
Satelite, Ahmedabad,
Gujarat-380 015. .. Respondents
***
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Prayer : Application under Order XIV Rule 8 of O.S. Rules read with
Section 9(ii)(a)(b) and (e) and (d) of the Arbitration and Conciliation
Act, 1996, praying to pass an order directing the first and second
respondents to furnish security to the tune of Rs.71,73,884/- or such
sum as this Hon'ble Court may direct ; within such time that this
Court may stipulate and in case of default to do so, order sale of the
property of the respondents morefully described in the schedule to
the Judge's summons pending enforcement of the award.
***
For Applicant : Mr.R.Umashankar
in all Applications for M/s.Sri & Shankar Associates
For Respondents-1: Mr.Mothilal
& 3 in A.No.1390/17 for M/s.Mothilal & Goda
For Respondent in: Mr.Pugazh Gandhi
A.No.1440/17
For Respondents 1: Mr.R.Ganeshkumar
& 2 in A.No.2475/19
Mr.S.Ramesh,
Amicus Curiae
COMMON ORDER
Admittedly, all these are applications under Section 9 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the
Arbitration Act") seeking an order of sale of the immovable properties
for securing money claim of the applicant, either pending disposal of
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arbitration proceedings or after obtaining awards from the Arbitral
Tribunals. Further, the claimant had registered mortgages in its
favour and had proceeded for a simple money claim as an unsecured
creditor before the Arbitral Tribunal apparently aware of the bar
created by virtue of the decision of the Hon'ble Supreme Court in
Booz Allen and Hamilton Inc. vs. SBI Home Finance Limited
and others reported in 2011 (5) SCC 532.
2. The applicant - financial institution had lent money to mostly
the first respondent under the respective loan agreement which
contains a clause to resolve the disputes by way of arbitration. The
loan agreements also have been executed along with registered
mortgages of properties owned by the borrowers or guarantors, some
of whom have been arrayed as the parties to these applications. As
stated earlier, the Arbitral claims are only for simple money recovery
without touching upon the registered mortgage deeds. Wherever the
arbitral awards had quantified the money recoverable, the applicant
had filed applications seeking a direction to the concerned
respondents to furnish security to the award amount, failing which, to
order sale of the secured assets.
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2.1. It is to be stated that the applicant earlier filed A.No.5101
of 2017, which was ordered on 03.07.2018 based on the terms
appended therein in the said application. The applicant now filed
A.No.5190 of 2019 seeking permission to sell the property to the
intending buyer, by accepting his offer, which was below the upset
price stated in the original terms of sale.
3. Admittedly, the properties, which are sought to be sold by
way of public auction, are mortgaged with the applicant-Company. In
almost all the cases, the awards have been passed in the absence of
the borrowers, the details of which are as follows:-
Sl. Application Respondents Name Status of Petition to set
No. No. Arbitration aside the
award
1 1390/2017 M/s.Sambhav Award Passed on Not filed
Infrastructure 05.03.2017
2 1440/2017 M/s.Bhanu Cosmetics Award passed on Not filed
Packaging Pvt. Ltd., 29.08.2017
3 4186/2018 Mr.P.Sekar Award Passed on Not filed
11.12.2018
4 6327/2018 Mrs.S.Swathi Award Passed on Not filed
28.08.2018
5 7745/2018 M/s.Great Ventures Award Passed on Not filed
13.08.2019
6 8880/2018 Mr.Sundar G Award Passed on Not filed
20.08.2019
7 2474/2019 Mr.Selvam M Award Passed on Not filed
19.10.2019
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Sl. Application Respondents Name Status of Petition to set
No. No. Arbitration aside the
award
8 2475/2019 Mr.R.Sakthivel Arbitration Not applicable
Pending
9 2762/2019 Mr.R.Bharathidasan Award Passed on Not filed
20.08.2019
10 2765/2019 Mr.V.Satish Award Passed on Not filed
19.10.2019
11 2766/2019 Mr.A. Bala Award Passed on Not filed
Subramanian 19.10.2019
12 2767/2019 M/s.Amman Traders Arbitration Not applicable
pending
13 3063/2019 Mr.D.Vasanth Arbitration Not applicable
pending
14 3242/2019 Mr.K.Baskar Award Passed on Not filed
07.09.2019
15 3244/2019 Mr.M.Arumugam Award Passed on Not filed
19.10.2019
16 3246/2019 Mr.P.K.Bharani Award Passed on Not filed
01.10.2019
17 3268/2019 Mr.Bala Murali Award Passed on Not filed
19.10.2019
18 3325/2019 Mr.A.R.Suresh Award Passed on Not filed
01.10.2019
19 4207/2019 Mr.R.Rekha Award Passed on Not filed
16.10.2019
20 5190/2019 M/s.Dani Aviation Award Passed on Not filed
Service Private Limited 14.09.2017
4. In the above said backdrop of the facts, the scope and
maintainability of the second limb of the prayer made in these
applications arise for consideration.
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5. Mr.R.Umashankar, the learned counsel for the applicant
would contend that,
(i) the applicant had filed its claim only for recovery of money
due under the contracts cited supra and no relief of enforcing the
mortgage was prayed before the Arbitral Tribunals, as the Arbitral
Tribunals have no jurisdiction to pass awards touching the properties
mortgaged. Hence, the award is only with respect to recovery of
money. Therefore, the applicant could not enjoy the benefits of
mortgage created by the respondents in its favour. However, as per
the scheme of mortgage, the right of the applicant to proceed against
the mortgaged property is not curtailed merely because the applicant
has only filed the money claim before the Arbitral Tribunal and the
applicant is entitled to approach this Court for sale of the mortgaged
property so as to secure the claim of the applicant under the
mortgage, which according to the applicant, is now crystallized in
view of the arbitral awards.
(ii) It is next submitted that even in execution proceedings too,
the applicant is bound to seek the relief only for attachment and sale
of the mortgaged property in view of the simple money award passed
by the learned Arbitrators. In that event, the applicant will only be
considered as an unsecured creditor and the sale proceeds from and
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out of the sale of the properties will be distributed rateably amongst
the creditors irrespective of the fact that the properties are
mortgaged in favour of the applicant.
(iii) The applicant having selected the right of adjudication of
the claim under the loan agreement through arbitral proceedings and
obtained the above awards, would be estopped from filing a suit,
based on the mortgage deed. A suit, even if filed, would be hit by the
provisions of Order VII Rule 11 of the Code of Civil Procedure (in
short, "C.P.C.") and Section 8 of the Arbitration Act.
(iv) As in all these cases, the claim is less than one crore, the
applicant cannot invoke the provisions of the SARFAESI Act, though
there are mortgage deeds and secured assets available.
(v) Though the applicant is entitled to invoke the provisions
of the Transfer of Property Act and sell the mortgaged property, in all
the cases, the properties which are the subject matter of the
respective applications are situate outside the limits of Chennai
Metropolitan. Hence, the sale of the mortgaged property without the
intervention of the Courts is not possible.
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6. The learned counsel for the applicant endeavoured to submit
that Section 9 of the Arbitration Act is akin to the proceedings under
Section 94 of the C.P.C, which is supplementary proceedings and that
a comparative reading of Section 94 of C.P.C with Section 9 of the
Arbitration Act would prove that the powers of the Court to grant
appropriate relief as may appear to the Court to be "Just and
Convenient".
7. Therefore, the learned counsel for the applicant contended
that Section 9 of the Arbitration Act being an independent
proceedings and not an extension of proceedings before the Arbitral
Tribunal, this Court is empowered to grant appropriate relief except
the powers to arrest and detain or initiate contempt proceedings.
8. Heard the learned counsels appearing on behalf of the
respondents in A.Nos.1390 and 1440 of 2017 and 2475 of 2019.
8.1. In respect of the other cases, since the respondents did not
appear, this Court appointed Mr.S.Ramesh, Advocate, as Amicus
Curiae to assist the Court.
9.The learned Amicus Curiae submitted that the distinction
between the disputes which are capable of being decided by the
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Arbitration and those which are not, is brought out in the decisions of
the Hon'ble Supreme Court in Haryana Telecom Ltd. vs Sterlite
Industries (India) Ltd. [1999 (3) SCR 861] and Olympus
Superstructures (P) Ltd vs Meena Vijay Khetan [1999 (5) SCC
651]. The above decisions distinctly clarified that matters like
criminal offences and matrimonial disputes may not be the subject
matter of resolution by arbitration. In a later decision in 2011 (5)
SCC 532 [Booz Allen and Hamilton Inc. -vs- SBI Home Finance
Limited and others, the Hon'ble Supreme Court had made
distinction between an agreement to sell or an agreement to
mortgage and a mortgage deed. It is also held that a mortgage suit
for sale of the mortgaged property is an action in rem, i.e., an
enforcement of a right in rem. As the suit for enforcement of a
mortgage being the enforcement of a right in rem, it has to be
necessarily decided by the Courts of law and not by Arbitral Tribunals.
For the purpose of reference, paragraphs 47 to 51 and 53 are
extracted below:
"47. The scheme relating to adjudication of
mortgage suits contained in Order 34 of the Code of Civil
Procedure, replaces some of the repealed provisions of the
Transfer of Property Act, 1882 relating to suits on
mortgages (Sections 85 to 90, 97 and 99) and also
provides for implementation of some of the other provisions
of that Act (Sections 92 to 94 and 96). Order 34 of the
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Code does not relate to execution of decrees, but provides
for preliminary and final decrees to satisfy the substantive
rights of mortgagees with reference to their mortgage
security.
48. The provisions of the Transfer of Property Act
read with Order 34 of the Code, relating to the procedure
prescribed for adjudication of the mortgage suits, the rights
of mortgagees and mortgagors, the parties to a mortgage
suit, and the powers of a court adjudicating a mortgage
suit, make it clear that such suits are intended to be
decided by public fora (courts) and therefore, impliedly
barred from being referred to or decided by private fora
(Arbitral Tribunals). We may briefly refer to some of the
provisions which lead us to such a conclusion.
48.1. Rule 1 of Order 34 provides that subject to the
provisions of the Code, all persons having an interest either
in the mortgage security or in the right of redemption shall
have to be joined as parties to any suit relating to
mortgage, whether they are parties to the mortgage or not.
The object of this Rule is to avoid multiplicity of suits and
enable all interested persons, to raise their defences or
claims, so that they could also be taken note of, while
dealing with the claim in the mortgage suit and passing a
preliminary decree. A person who has an interest in the
mortgage security or right or redemption can therefore
make an application for being impleaded in a mortgage
suit, and is entitled to be made a party. But if a mortgage
suit is referred to arbitration, a person who is not a party to
the arbitration agreement, but having an interest in the
mortgaged property or right of redemption, cannot get
himself impleaded as a party to the arbitration proceedings,
nor get his claim dealt with in the arbitration proceedings
relating to a dispute between the parties to the arbitration,
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thereby defeating the scheme relating to mortgages in the
Transfer of Property Act and the Code. It will also lead to
multiplicity of proceedings with the likelihood of divergent
results.
48.2. In passing a preliminary decree and final
decree, the court adjudicates, adjusts and safeguards the
interests not only of the mortgagor and mortgagee but also
puisne/mesne mortgagees, persons entitled to equity of
redemption, persons having an interest in the mortgaged
property, auction-purchasers, persons in possession. An
Arbitral Tribunal will not be able to do so.
48.3. The court can direct that an account be taken
of what is due to the mortgagee and declare the amounts
due and direct that if the mortgagor pays into court, the
amount so found due, on or before such date as the court
may fix (within six months from the date on which the
court confirms the account taken or from the date on which
the court declares the amount due), the petitioner shall
deliver the documents and if necessary re-transfer the
property to the defendant; and further direct that if the
mortgagor defaults in payment of such dues, then the
mortgagee will be entitled to final decree for sale of the
property or part thereof and pay into court the sale
proceeds, and to adjudge the subsequent costs, charges,
expenses and interest and direct that the balance be paid
to the defendant/mortgagor or other persons entitled to
receive the same. An Arbitral Tribunal will not be able to do
so.
48.4. Where in a suit for sale (or in a suit for
foreclosure in which sale is ordered), subsequent
mortgagees or persons deriving title from, or subrogated to
the rights of any such mortgagees are joined as parties, the
court while making the preliminary decree for sale under
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Rule 4(1), could provide for adjudication of the respective
rights and liabilities of the parties to the suit in a manner
and form set forth in Forms 9, 10 and 11 of Appendix ‘D’ to
the Code with such variations as the circumstances of the
case may require. In a suit for foreclosure in the case of an
anomalous mortgage, if the plaintiff succeeds, the court
may, at the instance of any party to the suit or any other
party interested in the mortgage security or the right of
redemption, pass a like decree in lieu of a decree for
foreclosure, on such terms as it thinks fit. But an Arbitral
Tribunal will not be able to do so.
48.5. The court has the power under Rule 4(2), on
good cause being shown and upon terms to be fixed by it,
from time to time, at any time before a final decree is
passed, extend the time fixed for payment of the amount
found or declared due or the amount adjudged due in
respect of subsequent costs, charges, expenses and
interest, upon such terms as it deems fit. The Arbitral
Tribunal will have no such power.
49. A decree for sale of a mortgaged property as in
the case of a decree for order of winding up, requires the
court to protect the interests of persons other than the
parties to the suit/petition and empowers the court to
entertain and adjudicate upon rights and liabilities of third
parties (other than those who are parties to the arbitration
agreement). Therefore, a suit for sale, foreclosure or
redemption of a mortgaged property, should only be tried
by a public forum, and not by an Arbitral Tribunal.
Consequently, it follows that the court where the mortgage
suit is pending, should not refer the parties to arbitration.
50. The appellant contended that the suit ultimately
raises the following core issues, which can be decided by a
private forum: (i) Whether there is a valid mortgage or
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charge in favour of SBI? (ii) What is the amount due to
SBI? and (iii) Whether SBI could seek eviction of the
appellant from the flat, even if it is entitled to enforce the
mortgage/charge? It was submitted that merely because
mortgage suits involve passing of preliminary decrees and
final decrees, they do not get excluded from arbitrable
disputes. It is pointed out that the Arbitral Tribunals can
also make interim awards deciding certain aspects of the
disputes finally which can be equated to preliminary
decrees granted by courts, and the final award made by the
arbitrator, after detailed accounting, etc. could be
compared to the final decree passed by courts. It is
therefore contended that there is no impediment for the
parties to mortgage suits being referred to arbitration
under Section 8 of the Act.
51. If the three issues referred by the appellant are
the only disputes, it may be possible to refer them to
arbitration. But a mortgage suit is not only about
determination of the existence of the mortgage or
determination of the amount due. It is about enforcement
of the mortgage with reference to an immovable property
and adjudicating upon the rights and obligations of several
classes of persons (referred to in para 48.2 above), who
have the right to participate in the proceedings relating to
the enforcement of the mortgage, vis-à-vis the mortgagor
and mortgagee. Even if some of the issues or questions in a
mortgage suit (as pointed out by the appellant) are
arbitrable or could be decided by a private forum, the
issues in a mortgage suit cannot be divided.
Conclusion
53. Having regard to our finding on Question (iv) it
has to be held that the suit being one for enforcement of a
mortgage by sale, it should be tried by the court and not by
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an Arbitral Tribunal. Therefore we uphold the dismissal of
the application under Section 8 of the Act, though for
different reasons."
10. The above decision having created a bar that only a suit is
maintained for enforcement of mortgage by sale and the power of
Arbitral Tribunal is ousted, whether the Court dealing with an interim
relief under Section 9 of the Arbitration Act, can grant the same?
11. In the light of the above position, so far as the grant of
relief under Section 9 of the Arbitration Act for sale of immovable
property as an interim measure through a court, based on an arbitral
award without involving the said secured asset is not possible.
12. The mortgage is created by transferring the interest in
immovable property as a security for a loan which is a right in rem.
Therefore in a mortgage there is conveyance of legal interest in a
property with a provision for redemption. The right of redemption is
the most important, basic and fundamental right possessed by the
mortgagor. The said right is not a contractual right, but a
legal/statutory right given to the mortgagor under under Section 60
of the Transfer of Property Act. The said right of redemption can be
extinguished only by a process known to law. The well settled
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principle 'once a mortgage always a mortgage' recognises the right of
the mortgagor to redeem the property as fundamental to the
transaction of a mortgage. If the said right is denied to the
mortgagor, it would tantamount to infringement of the right of the
mortgagor and would frustrate the transaction.
13. It is admitted that in all the applications the subject
properties that are mortgaged are situate outside the territorial
jurisdiction of this court, hence, this court cannot have jurisdiction. As
all the applications are for sale of the immovable properties
mortgaged i.e. enforcement of mortgage, which would involve
adjudication of rights and obligations of several classes of persons
who are not before this court, no order can be passed under Section 9
of the Arbitration and Conciliation Act.
14. In this context, it is relevant to consider Bharat
Aluminium Co (BALCO) V. Kaiser Aluminium Technical Services
Inc. case, reported in 2012 (9) SCC 552. While dealing with the
question as to whether an inter party suit for interim relief is
maintainable, the Hon'ble Supreme Court has observed that no
interim relief can be granted unless it is in aid of and ancillary to the
main relief in the suit that may be available to the party on final
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determination of rights in the suit placing reliance on a decision in
Siskina (Owners of cargo) V. Distos Compania Naviera S.A.
reported in 1977 (3) All ER 803 (HL). The relevant paragraphs in
the said judgment are extracted hereunder:
"175. In our opinion, pendency of the arbitration
proceedings outside India would not provide a cause of
action for a suit where the main prayer is for injunction.
Mr.Sundaram has rightly pointed out that the entire suit
would be based on the pendency of arbitration
proceedings in a foreign country. Therefore, it would not
be open to a party to file a suit touching on the merits of
the arbitration. If such a suit was to be filed, it would in all
probabilities be stayed in view of Sections 8 and 45 of the
Arbitration Act, 1996. It must also be noticed that such a
suit, if at all, can only be framed as a suit to “inter alia
restrain the defendant from parting with property.” Now, if
the right to such property could possibly arise, only if the
future arbitration award could possibly be in favour of the
plaintiff, no suit for a declaration could obviously be filed,
based purely only on such a contingency. All that could
then be filed would, therefore, be a bare suit for injunction
restraining the other party from parting with property. The
interlocutory relief would also be identical. In our view,
such a suit would not be maintainable, because an
interlocutory injunction can only be granted during the
pendency of a civil suit claiming a relief which is likely to
result in a final decision upon the subject in dispute. The
suit would be maintainable only on the existence of a
cause of action, which would entitle the plaintiff for the
substantive relief claimed in the suit. The interim
injunction itself must be a part of the substantive relief to
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which the plaintiff’s cause of action entitled him. In our
opinion, most of the aforesaid ingredients are missing in a
suit claiming injunction restraining a party from dealing
with the assets during the pendency of arbitration
proceedings outside India. Since the dispute is to be
decided by the Arbitrator, no substantive relief concerning
the merits of the arbitration could be claimed in the suit.
The only relief that could be asked for would be to
safeguard the property which the plaintiff may or may not
be entitled to proceed against. In fact the plaintiff’s only
claim would depend on the outcome of the arbitration
proceeding in a foreign country over which the courts in
India would have no jurisdiction. The cause of action
would clearly be contingent/speculative. There would be
no existing cause of action. The plaint itself would be liable
to be rejected under Order VII Rule 11(a). In any event,
as noticed above, no interim relief could be granted unless
it is in aid of and ancillary to the main relief that may be
available to a party on final determination of rights in a
suit. This view will find support from a number of
judgments of this Court.
182. Interpreting Order 11 Rule 1(i), it was held
that the word used in sub- rule (i) are terms of legal art.
The sub-rule speaks of “the action” in which a particular
kind of relief, “an injunction” is sought. This pre-supposes
the existence of a cause of action on which to found “the
action”. A right to obtain an interlocutory injunction is not
a cause of action. It cannot stand on its own. It is
dependent upon there being a pre-existing cause of action
against the defendant arising out of an invasion, actual or
threatened by him, of a legal or equitable right of the
plaintiff for the enforcement of which the defendant is
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amenable to the jurisdiction of the Court. The right to
obtain an interlocutory injunction is merely ancillary and
incidental to the pre- existing cause of action. It is granted
to preserve the status quo pending the ascertainment by
the Court of the rights of the parties and the grant to the
plaintiff of the relief to which his cause of action entitles
him, which may or may not include a final injunction.
183. As noticed earlier, the position is no different
in India. Therefore it appears that under the law, as it
stands today, an inter-parte suit simply for interim relief
pending arbitration outside India would not be
maintainable."
15. It is also relevant to advert to a decision of the Hon'ble
Apex Court in Cotton Corporation of India -vs- United Industrial
Bank Limited and Others reported in 1983 (4) SCC 625. For
better appreciation, paragraph 10 of the said judgment is extracted
below:
"10. Mr Sen, learned counsel for the respondent
Bank, contended that Section 41(b) is not at all attracted
because it deals with perpetual injunction and the
temporary or interim injunction is regulated by the Code of
Civil Procedure specially so provided in Section 37 of the
Act. Expression ‘injunction’ in Section 41(b) is not qualified
by an adjective and therefore, it would comprehend both
interim and perpetual injunction. It is, however, true that
Section 37 specifically provides that temporary injunctions
which have to continue until a specified time or until further
order of the court are regulated by the Code of Civil
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Procedure. But if a dichotomy is introduced by confining
Section 41 to perpetual injunction only and Section 37 read
with Order 39 of the Code of Civil Procedure being confined
to temporary injunction, an unnecessary grey area will
develop. It is indisputable that temporary injunction is
granted during the pendency of the proceeding so that while
granting final relief the court is not faced with a situation
that the relief becomes infructuous or that during the
pendency of the proceeding an unfair advantage is not
taken by the party in default or against whom temporary
injunction is sought. But power to grant temporary
injunction was conferred in aid or as auxiliary to the final
relief that may be granted. If the final relief cannot be
granted in terms as prayed for, temporary relief in the same
terms can hardly if ever be granted. In State of Orissa v.
Madan Gopal Rungta, AIR 1952 SC 12, a Constitution Bench
of this Court clearly spelt out the contours within which
interim relief can be granted. The Court said that ‘an interim
relief can be granted only in aid of, and as ancillary to, the
main relief which may be available to the party on final
determination of his rights in a suit or proceeding’. If this be
the purpose to achieve which power to grant temporary
relief is conferred, it is inconceivable that where the final
relief cannot be granted in the terms sought for because the
statute bars granting such a relief ipso facto the temporary
relief of the same nature cannot be granted. To illustrate
this point, let us take the relief which the Bank seeks in its
suit. The prayer is that the Corporation be restrained by an
injunction of the court from presenting a windingup petition
under the Companies Act, 1956 or under the Banking
Regulation Act, 1949. In other words, the Bank seeks to
restrain the Corporation by an injunction of the court from
instituting a proceeding for winding up of the Bank. There is
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a clear bar in Section 41(b) against granting this relief. The
court has no jurisdiction to grant a perpetual injunction
restraining a person from instituting a proceeding in a court
not subordinate to it, as a relief, ipso facto temporary relief
cannot be granted in the same terms The interim relief can
obviously be not granted also because the object behind
granting interim relief is to maintain status quo ante so that
the final relief can be appropriately moulded without the
party's position being altered during the pendency of the
proceedings."
16. The above said decision followed the case in AIR 1952 SC
12, State of Orissa V. Madan Gopal to hold that if final relief as
sought for cannot be granted, temporary relief in the same terms
cannot be granted.
17. Viewed from the said angle of interpretation, in the instant
case, the applicant is seeking to enforce the mortgage and
consequently sale of mortgaged property before the Arbitral Tribunal.
However, a specific bar has been created by virtue of the decision of
the Hon'ble Supreme Court. As per Booz Allen's case, when the
main relief before the Arbitral Trbunal itself is barred whether the
applicant would be entitled to interim relief in the nature of sale of
mortgaged property. In most of the cases, awards have been passed
by the Arbitral Tribunals which have become final in favour of the
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applicant. The Booz Allen's case has discussed the power of the
Arbitral Tribunal to entertain a claim of mortgage alone but has not
specifically discussed whether Section 9 application for sale in the
light of the claim made under the mortgage deed or otherwise is
possible.
18. It was pointedly argued by the learned counsel for the
applicant that the provision of the Civil Procedure Code which is
applicable to the mortgage suits, i.e., Order 34, is not applicable to
the proceedings under Section 9 of the Arbitration Act. It was
submitted that Order 34 CPC is applicable only to the suits which are
filed by the creditor touching upon the mortgaged property and not to
the applications under Section 9 of the Arbitration Act. According to
the learned counsel, the Legislature has neither intent nor imported
the provisions of the Code of Civil Procedure, 1908 into the
proceedings under the Arbitration Act. This principle is evident from
the fact that the legislature while importing the provisions of the Civil
Procedure Code to the proceedings under Section 36 of the
Arbitration Act, has not whispered either about the applicability or
importing of the provisions of the Civil Procedure Code into any other
provisions of the Arbitration Act. Section 36 of the Arbitration Act
would substantiate that the award passed by the Arbitral Tribunal is
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enforceable as a decree passed by the court under the Code of Civil
Procedure. Only under the provision for enforcement of the award
passed by the Arbitrator, the legislature has imported the provisions
of the Code of Civil Procedure, that too only Order XXI in execution
proceedings before the competent civil court. Therefore, it was urged
that the provisions of the Civil Procedure Code is not applicable to the
proceedings under Section 9 of the Arbitration Act.
19. Admittedly, the Arbitral Tribunals have proceeded only on
the basis of the loan agreements which contained an arbitration
clause whereas the mortgage deeds have not been invoked. Even in
the Code of Civil Procedure, supplemental and incidental proceedings
are dealt with separately, as they are not part of the main
proceedings. Section 94 deals with supplemental proceedings and
incidental proceedings which arise out of the main proceedings. The
distinction between the main proceedings and the supplemental
proceedings are discussed in Food Corporation of India -vs-
Yadav Engineer and Contractor reported in 1982 (2) SCC 499.
In the said decision, the Hon'ble Apex Court at paragraph Nos.12 and
31 held as follows:
"12. Arbitration agreement generally provides for
resolution of disputes either present or future by a forum of
the choice of the parties. Ordinarily, arbitration agreement
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finds its place in contracts. Apprehending that while
performing contract some disputes may arise, care is taken
to incorporate an arbitration agreement in the contract itself
prescribing the forum for resolution of such disputes. To
illustrate, partnership contracts incorporate arbitration
agreement for resolution of disputes arising out of the
contract of partnership. Building contracts these days
incorporate arbitration agreements. International
commercial transactions also incorporate arbitration
agreements. The purpose underlying entering into
arbitration agreement is to provide for resolution of disputes
arising from the contract between the parties. Now, if a
party to an arbitration agreement files a suit seeking relief in
respect of disputes arising from the contract the other party
to the agreement can either waive the benefit of the
arbitration agreement and acquiesce in the suit or enforce
the arbitration agreement. Such conduct has specifically to
be in relation to disputes covered by arbitration agreement.
But if a party to an arbitration agreement files a suit and
simultaneously moves an interlocutory application such as
an application for appointment of Receiver, usually to be
found in suits for dissolution of partnership and rendering
accounts, or for an interm injunction to ward off a
threatened or continuing breach of contract, irreparable
harm would be suffered by the other party to the arbitration
agreement if it cannot contest the interlocutory application
on the pain of abandoning the benefit of arbitration
agreement. A concrete illustration would be both illuminating
and convincing. In a suit for dissolution of partnership and
accounts an application for appointment of Receiver as also
an application for interim injunction restraining the
defendant from using the partnership goods or assets for
continuing the business are filed. The court passes ex parte
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interim order and issues notice calling upon the defendant to
show cause why the same should not be made absolute. In a
running business appointment of a Receiver would
thoroughly dislocate the business and an injunction would
bring to standstill the flourishing business. If the defendant
appears and contests the application for appointment of
Receiver as also the application for injunction, could he be
said to display an unequivocal intention to give up the
benefit of the arbitration agreement and to acquiesce in the
suit? The dispute between the parties is whether the
partnership should be dissolved as per the contract of
partnership. Interim injunction application or application for
appointment of Receiver have nothing to do directly or
substantially with the terms of the partnership. The main or
substantial dispute will be covered by the plaint filed in the
suit. Incidental proceedings for appointment of Receiver or
for interim injunction are for the protection either of the
property or the interests of the parties. Now, when ex parte
orders are obtained on ex parte averments the other party
cannot be precluded from coming and pointing out that no
case is made out for granting interim relief. It would be too
cumbersome to expect the party first to apply for stay and
then invite the court under Section 41(b) of the Act to
vacate the injunction or to discharge the Receiver. Giving
the expression “taking any other steps in the proceedings”
such wide connotation as making an application for any
purpose in the suit such as vacating stay, discharge of the
Receiver or even modifying the interim orders would work
hardship and would be inequitous to the party who is willing
to abide by the arbitration agreement and yet be forced to
suffer the inequity of ex parte orders. Therefore, the
expression “taking any other steps in the proceedings” must
be given a narrow meaning in that the step must be taken in
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the main proceeding of the suit and it must be such step as
would clearly and unambiguously manifest the intention to
waive the benefit of the arbitration agreement and to
acquiesce in the proceedings. Interlocutory proceedings are
incidental to the main proceedings. They have a life till the
disposal of the main proceeding. As the suit or the
proceeding is likely to take some time before the dispute in
the suit is finally adjudicated, more often interim orders
have to be made for the protection of the rights of the
parties. Such interlocutory proceedings stand independent
and aloof of the main dispute between the parties involved
in the suit. They are steps taken for facilitating the just and
fair disposal of the main dispute. When these interlocutory
proceedings are contested it cannot be said that the party
contesting such proceedings has displayed an unequivocal
intention to waive the benefit of the arbitration agreement or
that it has submitted to the jurisdiction of the court. When
ex parte orders are made at the back of the party the other
party is forced to come to the court to vindicate its right.
Such compulsion cannot disclose an unambiguous intention
to give up the benefit of the arbitration agreement.
Therefore, taking any other steps in the proceedings must
be confined to taking steps in the proceedings for resolution
of the substantial dispute in the suit. Appearing and
contesting the interlocutory applications by seeking either
vacation thereof or modification thereof cannot be said to be
displaying an unambiguous intention to acquiesce in the suit
and to waive the benefit of the arbitration agreement. Any
other view would both be harsh and inequitous and contrary
to the underlying intendment of the Act. The first party
which approaches the court and seeks an ex parte interim
order has obviously come to the court in breach of the
arbitration agreement. By obtaining an ex parte order if it
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forces the other party to the agreement to suffer the order,
or by merely contesting be imputed the intention of waiving
the benefit of arbitration agreement, it would enjoy an
undeserved advantage. Such could not be the underlying
purpose of Section 34. Therefore, in our opinion, to
effectuate the purpose underlying Section 34 the narrow
construction of the expression “taking any other steps in the
proceedings” as hereinabove set out appears to advance the
object and purpose underlying Section 34 and the purpose
for which the Act was enacted.
31. Having thus critically examined both on principle
and precedent the meaning to be given to the expression
“taking steps in the proceedings”, we are clearly of the view
that unless the step alleged to have been taken by the party
seeking to enforce arbitration agreement is such as would
display an unequivocal intention to proceed with the suit and
acquiesce in the method of resolution of dispute adopted by
the other party, namely, filing of the suit and thereby
indicate that it has abandoned its right under the arbitration
agreement to get the dispute resolved by arbitration, any
other step would not disentitle the party from seeking relief
under Section 34. It may be clearly emphasized that
contesting the application for interim injunction or for
appointment of a Receiver or for interim relief by itself
without anything more would not constitute such step as
would disentitle the party to an order under Section 34 of
the Act."
20. A proceeding under Section 9 of the Arbitration Act is an
independent proceeding akin to that of supplemental proceedings
under Section 94 of C.P.C. Section 9 deals with interim measures, for
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which a party may, before or during arbitral proceedings or at any
time after making of the arbitral award but before it is enforced in
accordance with Section 36, can apply to a court. Thus, a very clear
demarcation has been made in respect of the scope of the Court to
grant interim relief.
21. Section 9 of the Arbitration Act deals with interim
measures, etc. by court. For better appreciation, the same is
extracted hereunder:
"9. Interim measures, etc., by Court.
(1) 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
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 of 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
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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.
(2) Where, before the commencement of the arbitral
proceedings, a Court passes an order for any interim
measure of protection under sub-section (1), the arbitral
proceedings shall be commenced within a period of ninety
days from the date of such order or within such further time
as the Court may determine.
(3) Once the arbitral tribunal has been constituted,
the Court shall not entertain an application under sub-
section (1), unless the Court finds that circumstances exist
which may not render the remedy provided under section 17
efficacious."
22. A plain reading of Section 9(1)(ii)(a) would disclose that the
same pertains to goods/movables. The present case relates to
immovable property. Therefore, the above provision is irrelevant.
23. As per Section 9(1)(ii)(b), the Court is empowered to pass
such orders for securing the amount in dispute in the arbitration. The
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applications are filed for sale of the property as an interim measure
for the purpose of securing the amount.
24. Section 9(1)(ii)(d) pertains to grant of interim injunction or
appointment of a receiver which has bearing on the issue involved in
the present proceedings in the light of power of Court appointed
Receiver to sell a property under the provisions of C.P.C. No such
prayer is sought for in these applications to appoint a Receiver.
25. Section 9(1)(iii)(e) is more in the nature of Sections 151
and 94(e) of C.P.C which also aids in defining the power of Court to
grant the relief as sought for in the present proceedings.
26. The power of the Court under Section 9 of the Arbitration
Act has been explained by the Hon'ble Supreme Court in the decision
reported in 2007 (7) SCC 125 [Adhunik Steels Ltd -vs- Orissa
Manganese and Minerals (P) Ltd. It has been held that the grant
of interim injunction or interim mandatory injunction has to be
necessarily based on the principles governing its grant emanating out
of the relevant provisions of the Specific Relief Act and the law
governing the subject. For better understanding, Sections 16, 17 and
19 of the Specific Relief Act, 1963 are extracted hereunder :
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"16. Personal bars to relief.—Specific performance of
a contract cannot be enforced in favour of a person— 2 [(a)
who has obtained substituted performance of contract under
section 20; or] (b) who has become incapable of performing,
or violates any essential term of, the contract that on his
part remains to be performed, or acts in fraud of the
contract, or wilfully acts at variance with, or in subversion
of, the relation intended to be established by the contract;
or (c) 3 [who fails to prove] that he has performed or has
always been ready and willing to perform the essential terms
of the contract which are to be performed by him, other than
terms of the performance of which has been prevented or
waived by the defendant. Explanation.—For the purposes of
clause (c),— (i) where a contract involves the payment of
money, it is not essential for the plaintiff to actually tender
to the defendant or to deposit in court any money except
when so directed by the court; (ii) the plaintiff 4 [must
prove] performance of, or readiness and willingness to
perform, the contract according to its true construction.
17. Contract to sell or let property by one who has no
title, not specifically enforceable.—(1) A contract to sell or
let any immovable property cannot be specifically enforced
in favour of a vendor or lessor— (a) who, knowing himself
not to have any title to the property, has contracted to sell
or let the property; (b) who, though he entered into the
contract believing that he had a good title to the property,
cannot at the time fixed by the parties or by the court for
the completion of the sale or letting, give the purchaser or
lessee a title free from reasonable doubt. (2) The provisions
of sub-section (1) shall also apply, as far as may be, to
contracts for the sale or hire of movable property.
19. Relief against parties and persons claiming under
them by subsequent title.—Except as otherwise provided by
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this Chapter, specific performance of a contract may be
enforced against— (a) either party thereto; (b) any other
person claiming under him by a title arising subsequently to
the contract, except a transferee for value who has paid his
money in good faith and without notice of the original
contract; (c) any person claiming under a title which, though
prior to the contract and known to the plaintiff, might have
been displaced by the defendant; 1 [(ca) when a limited
liability partnership has entered into a contract and
subsequently becomes amalgamated with another limited
liability partnership, the new limited liability partnership
which arises out of the amalgamation.] (d) when a company
has entered into a contract and subsequently becomes
amalgamated with another company, the new company
which arises out of the amalgamation; (e) when the
promoters of a company have, before its incorporation,
entered into a contract for the purpose of the company and
such contract is warranted by the terms of the incorporation,
the company: Provided that the company has accepted the
contract and communicated such acceptance to the other
party to the contract."
27. In terms of Section 28 of the Arbitration Act, even the
Arbitral Tribunal is enjoined to decide the dispute submitted to it, in
accordance with the substantive law for the time being in force in
India. Therefore, it cannot certainly be inferred that Section 9 keeps
out the substantive law relating to the interim reliefs.
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28. Similar views have been expressed in Firm Ashok Traders
& Another vs. Gurumukh Das Saluja and others reported in
2004 (3) SCC 155, Percept D'Mark (India) (P) Ltd. vs. Zaheer
Khan and Another reported in 2006 (4) SCC 227 and Arvind
Constructions Co. (P) Ltd vs. Kalinga Mining Corporation and
Others reported in 2007 (6) SCC 798.
29. In Arvind Constructions Co. (P) Ltd. vs. Kalinga
Mining Corporation and Others reported in (2007) 6 SCC 798,
the Hon'ble Apex Court at paragraph No.15 held as follows:
"15. The argument that the power under Section 9 of
the Act is independent of the Specific Relief Act or that the
restrictions placed by the Specific Relief Act cannot control
the exercise of power under Section 9 of the Act cannot
prima facie be accepted. The reliance placed on Firm Ashok
Traders v. Gurumukh Das Saluja [(2004) 3 SCC 155] in
that behalf does not also help much, since this Court in that
case did not answer that question finally but prima facie felt
that the objection based on Section 69(3) of the
Partnership Act may not stand in the way of a party to an
arbitration agreement moving the court under Section 9 of
the Act. The power under Section 9 is conferred on the
District Court. No special procedure is prescribed by the Act
in that behalf. It is also clarified that the court entertaining
an application under Section 9 of the Act shall have the
same power for making orders as it has for the purpose
and in relation to any proceedings before it. Prima facie, it
appears that the general rules that governed the court
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while considering the grant of an interim injunction at the
threshold are attracted even while dealing with an
application under Section 9 of the Act. There is also the
principle that when a power is conferred under a special
statute and it is conferred on an ordinary court of the land,
without laying down any special condition for exercise of
that power, the general rules of procedure of that court
would apply. The Act does not prima facie purport to keep
out the provisions of the Specific Relief Act from
consideration. No doubt, a view that exercise of power
under Section 9 of the Act is not controlled by the Specific
Relief Act has been taken by the Madhya Pradesh High
Court. The power under Section 9 of the Act is not
controlled by Order 18 Rule 5 of the Code of Civil Procedure
is a view taken by the High Court of Bombay. But, how far
these decisions are correct, requires to be considered in an
appropriate case. Suffice it to say that on the basis of the
submissions made in this case, we are not inclined to
answer that question finally. But, we may indicate that we
are prima facie inclined to the view that exercise of power
under Section 9 of the Act must be based on well-
recognised principles governing the grant of interim
injunctions and other orders of interim protection or the
appointment of a Receiver."
30. Following the decision of the Hon'ble Supreme Court in ITI
Ltd. vs. M/s.Siemens Public Communications Network Ltd.,
reported in 2002 (5) SCC 510, this Court has also held in several
cases that there is no express provision against application of Code of
Civil Procedure in relation to the proceedings arising under the
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Arbitration Act. It is held that, if a Civil Court has power to do certain
things in terms of specific provisions of the Act, those powers, can,
well be exercised by the Court, while dealing with the application
under Section 9 of the Arbitration Act. A Division bench of this Court
in Om Sakthi Renergies Ltd. vs. Megatech Control Ltd reported
in 2006-2-LW-118, also has observed that the Code of Civil
Procedure shall be a guiding factor for exercise of powers by the
Court under Section 9(ii)(b) of the Arbitration Act to determine
whether such order deserves to be passed for justice to the cause
following the judgment in Siemens case (supra). All these decisions
clearly establish the basic principle, namely, guidelines or principles
as contained in Code of Civil Procedure under Orders 38 to 40 would
essentially guide the Court for granting a relief under Section 9 of the
Arbitration Act.
31. As referred supra, Section 28 of the Arbitration Act
mandates that the Arbitral Tribunal should decide the dispute
submitted to arbitration in accordance with the substantive law for
the time being enforced in India. Based on the same, the Courts
have held that the substantive law of the State would govern the
powers of the Court or Tribunal in respect of matters coming within
the realm of the Arbitration Act.
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32. In Tata Capital Finance Services Limited v. Deccan
Chronicle Holdings Limited reported in 2013 SCC Online Bom
307, the High Court of Bombay at paragraph Nos.35 and 41 held as
under:
"35......If the petitioner choses not to apply for
enforcement of mortgage and files a simplicitor suit for
recovery of money or for enforcement of any other
properties which were not mortgaged by the respondents
in favour of the petitioners, such proceedings would be
the proceedings in personam and not in rem which
obviously would be within the jurisdiction of the arbitral
tribunal to adjudicate upon. In my view, even if any such
relief by way of enforcement of mortgage is claimed
before the arbitral tribunal, petitioner would always have
liberty to decide whether to withdraw such claims and/or
seek amendment for moulding its reliefs, which would be
within the jurisdiction of the arbitral tribunal. In my view,
if any such reliefs are claimed which are beyond the
jurisdiction of the arbitral tribunal and cannot be
adjudicated upon, mechanism under Section 16 is
provided by the legislature to raise issue of jurisdiction by
the respondents before the arbitral tribunal. On hearing
such application under Section 16, an arbitral tribunal
can always decide whether any of the claims made by the
claimants were within its jurisdiction to adjudicate upon.
In my view, proceedings under Section 9 filed in this
Court by the petitioner for interim measures, cannot be
equated with the proceedings filed in a pending suit for
referring the parties to arbitration under Section 8 of the
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Act of 1996. Thus, in my view, reliance placed by the
respondents on the Judgment of Supreme Court in case
of Booz Allen2 (supra) is of no assistance to the
respondents while opposing application under Section 9
of the Act of 1996.
41. On reading of section 9 of the Arbitration &
Conciliation Act, 1996, it is clear that the Court can grant
interim measures under sub section 2(b), (d) and (e)
even if the property or things are not subject matter of
the dispute in arbitration. It is clear that for granting
interim measures or protection, the Court would not have
power to grant such interim measures, if it is for
preservation, interim custody or sale of any goods, the
detention, preservation or inspection of any property or
thing or as to which any question may arise therein and
authorizing 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 unless
such goods or property are subject matter of arbitration.
I am, thus, not inclined to accept the submission of the
respondent that if the petitioner gives up its claim for
enforcement of mortgaged properties, no interim
measures can be granted under section 9 by this Court
for recovery of money claim simplicitor."
33. The very same judgment was followed in Aditya Birla
Finance Limited vs. Mr.Carnet Elias Fernandes and Another
reported in 2015 SCC Online Bom 4774. Paragraph No.44 of the
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said judgment reads thus:
"44. Be that as it may, this court has already
taken a view in case of Tata Capital Financial Services
Limited v. Deccan Chronicle Holdings Limited (supra) that
the proceedings under section 9 for interim measures
cannot be equated with the proceedings filed in a pending
suit for referring the parties for arbitration under section
8 of the Arbitration Act. In my view, the principles laid
down by this court in the said judgment can be extended
in the present proceedings under section 9. The reliefs
under section 9 for appointment of the Court Receiver in
respect of the mortgage property through in respect of
which no reliefs are claimed by the petitioner in the
statement of claim, can still be granted in respect of the
said properties to secure the claims of the petitioner
under section 9(ii)(d) of the Arbitration Act. This court
has held in the said judgment that the court can grant
interim measures under section 9(ii)(b), (d) and (e) even
if the property or things are not subject matter of the
dispute in arbitration. This court has also held that even
if the petitioner gives up its claim for enforcement of
mortgaged properties, interim measures can still be
granted under section 9, even if the petitioner has made
claim for recovery of money claim simplicitor in the
statement of claim. I am respectfully bound by the said
judgment."
34. In the above said cases, the petitioners have approached
the Court even before the Arbitral proceedings were initiated, seeking
for protection of the properties that were mortgaged, whereas the
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cases before this court are after passing of the award in the arbitral
proceedings and for sale of the properties.
35. In the light of the above view, the next question that has to
be examined is, whether the power of sale is available under the
Code of Civil Procedure, prior to decree?
36. The interim relief for a suit application can be broadly
categorised as follows:
(i) custody;
(ii) local inspection/collection of evidence, etc.,
(iii) mandatory injunction,
(iv) interim injunction/restraint order,
(v) direction to furnish security failing which attachment of
immovable property,
(vi) Attachment or sale of movables,
(vii) Appointment of Receiver, and
(viii) Sale of immovable property.
In normal circumstances of the above measures existing, the sale is
expressly available to a creditor/claimant/plaintiff prior to a decree
being passed in a suit. Order 39 Rule 6 CPC provides only for sale of
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movable properties prior to the decree. Power of the court for sale of
immovable property is not expressly available under CPC prior to the
decree.
37. Supplemental proceedings are provided for in Section 94 of
CPC which are not part of the main proceedings. Incidental
proceedings are interlocutory in nature which arise out of the main
proceedings. This court had already given a direction to furnish
security which was not responded by the Award debtors. Any
supplemental proceeding is initiated with a view to prevent the ends
of justice from being defeated. The applicant had the option of
moving the Civil Court for sale of the mortgaged property. The
Arbitral Awards have been passed based on the loan agreements
without reference to mortgage. Therefore, the applicant can enforce
the awards as provided in Section 36 of the Arbitration Act in
accordance with the provision of CPC.
38. In Industrial Credit & Investment Corporation of
India Ltd. and others vs. Karnataka Ball Bearing Corpn. Ltd.
and others reported in (1999) 7 SCC 488, the Hon'ble Supreme
Court has held that a civil court, through appointment of a receiver as
per Order 40 Rule 1 of CPC, has power to sell immovable property
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pending adjudication of the suit. While holding that under Order 40
Rule 1 of CPC the court has unfettered power in the event the court
feels that having due regard to the situation of the matter to appoint
a Receiver, it was held as follows:
"6. Order 40 Rule 1 of the Code of Civil Procedure
expressly provides for the appointment of a receiver over
a property whether before or after the decree and the
court may by an order confer on the receiver all powers
of realisation, management, protection, preservation and
improvement of the property. Order 40 Rule 1(d)
specifically provides for realisation and the words “or
such of those powers as the court thinks fit” appearing in
Order 40 Rule 1(d) ought to be interpreted in a manner
so as to give full effect to the legislative intent in the
matter of conferment of powers by the court to preserve
and maintain the property through the appointment of a
receiver. Needless to record here that there is existing a
power which is totally unfettered in terms of the
provisions of the statute. Law courts, however, in the
matter of appointment of a receiver through a long
catena of cases, imposed a self-imposed restriction to the
use of discretion in a manner which is in consonance with
the concept of justice and to meet the need of the
situation — “unfettered” does not and cannot mean
unbridled or unrestrictive powers and though exercise of
discretion is of the widest possible amplitude, but the
same has to be exercised in a manner with care, caution
and restraint so as to subserve the ends of justice. The
law courts are entrusted with this power under Order 40
Rule 1 so as to bring about a feeling of securedness and
to do complete justice between the parties."
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39. Whether the same analogy can be applied to the cases
before this court on the strength of the phrase "just and convenient"
as found in Section 9(1)(ii)(e) of the Arbitration Act.
40. There has been various enactments for realisation of debts
by financial institutions. Post 1997, the Law for recovery of debts by
Banks and Financial institutions has changed. The first of its change
was with the enactment of Recovery of Debts due to Banks and
Financial Institutions Act, wherein, claim of the banks beyond certain
sum, has to be decided by the Special Tribunals (Debts Recovery
Tribunal).
41. When the procedure contemplated, did not produce the
desired result or more impetus was needed, SARFAESI Act came into
being. A class of creditors, namely, secured creditors were identified
and such class of creditors were conferred with the power to liquidate
the assets of borrowers/guarantors for NPA/debt without intervention
of the court. Now the balance has shifted in favour of the financial
institutions for recovery of their debts in a speedy manner with a
caveat that such recovery must be by way of due process of law.
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42. Similarly, such power is also available with the State
Financial Corporation Act. With the advent of Insolvency and
Bankruptcy Code further impetus has been given for resolution of
debts by all class of creditors in a time bound manner. The direction
of successive legislations in this regard pointed out a case for
securing the amount in dispute without creditors being entangled in
endless legal procedures.
43. In all these applications, the prayer is to direct the
respondents to furnish security in favour of the applicant failing which
to bring the mortgaged properties to sale. The applicant was granted
the orders of directing the respondents to furnish security which were
not complied with till today. Section 9 only deals with sale of pledged
or hypothecated goods and not about immovable properties. The
applicants, besides getting mortgage deed executed, would have
obtained personal guarantee, promissory note etc. It is open to the
applicants to attach other properties of any of the respondents other
than the one mortgaged and bring them to sale.
44. The applicant had consciously not referred to the mortgage
in the statement of claim as it would be beyond the jurisdiction of
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arbitral tribunal. Therefore, the mortgaged properties cannot be sold
without instituting a suit for sale of mortgaged properties subject to
Order II Rule 2 of CPC.
45. The applicant financial institution had elected to go before
the Arbitral Tribunal, since it had two alternatives of civil court and
Arbitral Tribunal. Arbitration is an Adjudicating process. However,
Section 9 of the Arbitration Act is not for enforcement of the award
but for grant of an interim remedy. Merely because the claims are
less than a crore of rupees and that SARFAESI Act will not be made
applicable, the applicant cannot seek for sale of mortgaged property
under Section 9 of the Arbitration Act.
46. In view of the foregoing discussion, the irresistible
conclusion is that the applicant is not entitled for the second limb of
the prayer canvassed before this Court and these applications are not
maintainable, having no merit and accordingly, these applications are
dismissed as not maintainable.
47. Before parting with these applications, this Court places on
record its appreciation for the services rendered to this Court by
Mr.S.Ramesh, learned Amicus Curiae, by collating the relevant
https://www.mhc.tn.gov.in/judis/
authorities, throwing light on the subject and placing them before this
Court.
24.06.2021
Speaking Order/Non-Speaking Order
Index : Yes / No
Internet: Yes
srn/asr/gg
To
The Assistant Registrar,
Original Side,
Madras High Court,
Chennai-600 104.
https://www.mhc.tn.gov.in/judis/
PUSHPA SATHYANARAYANA, J.
Asr
A.Nos.1390 of 2017 etc. batch
24.06.2021
https://www.mhc.tn.gov.in/judis/
