Madras High Court

M/S.Shriram City Union Finance ... vs M/S.Saravana Fashion on 21 April, 2022

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                                  IN THE HIGH COURT OF JUDICATURE AT MADRAS

                                                 DATE: 21.04.2022

                                                       CORAM

                                    THE HONOURABLE MR.JUSTICE M.SUNDAR

                                       Arb. O.P. (Com.Div.) No.113 of 2022


                     M/s.Shriram City Union Finance Limited,
                     a Company having its Registered Office at
                     No.123, Angappa Naicken Street,
                     Chennai - 1.
                     And Branch Office at:
                     No.12, Ramaswamy Street,
                     T.Nagar, Chennai - 17 rep. by its
                     Authorised Signatory P.Siva Kumar                       ... Petitioner

                                                         Vs.

                     1.M/s.Saravana Fashion
                       rep. by its Partner V.Prabhakaran,
                       No.171, Indhu Nagar, Perundurai Road,
                       Palayapalayam, Erode - 638 011.

                        Also at M/s.Saravana Fashion,
                        No.8/415, AVP Layout,
                        Angenipalayam Road, Near AVP School,
                        Tiruppur - 641 603.

                     2.V.Prabhakaran
                     3.R.Thirupathi Venkatachalapathi                     ... Respondents



                                  Petition filed under Section 11 (6) of The Arbitration and
                     Conciliation Act, 1996 praying to appoint Dr.S.S.P.Darwesh, former
                     Vice Chancellor and Principal District and Sessions Judge or any fit and
                     competent person as an Arbitrator as per the provisions of the



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                     Arbitration and Conciliation Act, 1996, so as to adjudicate the claim
                     and the dispute between the petitioner and the respondents under the
                     Loan cum Hypothecation Agreement dated 31.03.2019 and direct the
                     respondents to pay the cost of the petition.



                                     For Petitioner     : Mr.M.Aravind Subramanian

                                     For Respondents    : Mr.A.Raghuraman

                                                           ORDER

In the captioned Arb OP, Mr.M.Aravind Subramanian, learned

counsel for petitioner and Mr.A.Raghuraman, learned counsel for all

the three respondents are before this Court.

2. This order has to be read in conjunction with and in

continuation of earlier proceedings made in the previous listing on

18.03.2022, which reads as follows:

Captioned 'Arbitration Original Petition' [hereinafter 'Arb OP' for the sake of convenience and clarity] has been presented on 31.01.2022 under Section 11(6) of 'The Arbitration and Conciliation Act, 1996 (Act No.26 of 1996)' [hereinafter 'A and C Act' for the sake of convenience and clarity] with a prayer for appointment of a sole Arbitrator.

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2. Mr.M.Aravind Subramaniam, learned counsel for sole petitioner who is before this Court submits that the captioned Arb OP is predicated on clauses 18 and 19 of a 'loan agreement dated 31.03.2019' [hereinafter 'primary contract' for the sake of convenience and clarity].

3. Learned counsel submits that sole petitioner and three respondents are signatories/parties to primary contract. Clauses 18 and 19 of the primary contract read as follows:

                                                   '18.     Arbitration         and      Dispute
                                       Settlement
                                                   a) Without prejudice to the Lender's

right available to it under the SARFAESI Act, 2002, all disputes, differences and/or claims, arising out of this Agreement, whether during its subsistence or thereafter, shall be settled by arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any other statutory modification or re- enactment for the time being in force and shall be conducted by a sole arbitrator to be appointed by the Lender. The applicable law shall be Indian laws. In the event of incapacity or resignation or death of the sole arbitrator so appointed, the Lender shall be entitled to appoint another arbitrator in place of the earlier arbitrator, and the proceedings shall

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continue from the stage at which the predecessor had left.

b) The award given by the arbitrator shall be final and binding on the parties to this Agreement. The cost of the Arbitration shall be borne with by the party/ies, in accordance with the Award passed by the Arbitrator.

c) The venue of Arbitration shall be as specified in Schedule 1 hereto and the proceedings shall be conducted in English Language.

d) The Borrower and Guarantor hereby agree and confirm that the Lender shall be permitted to invoke the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and any amendments thereto in order to recover its dues under this Agreement from the Borrower/Guarantor.


                                  19. Jurisdiction and Governing Law
                                             Subject      to      the         Arbitration     Clause
                                  mentioned      above,        this       Agreement         shall   be

governed and construed in accordance with the substantive laws of India and the parties hereto submit to the exclusive jurisdiction of the Courts, situate at the place as specified in schedule 1 hereto.'

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4. Learned counsel submits that the aforementioned clauses 18 and 19 in primary contract serve as an arbitration agreement between the sole petitioner and three respondents i.e., 'arbitration agreement' within the meaning of Section 2(1)(b) read with Section 7 of A and C Act.

5. Be that as it may, adverting to the case file, learned counsel submits that 'notice invoking arbitration agreement dated 29.10.2021' [hereinafter 'trigger notice' for the sake of convenience and clarity] was issued. Arbitration was triggered and first respondent sent a reply dated 13.11.2021 objecting to the nomination of sole Arbitrator, necessitating the presentation of captioned Arb OP in this Court is learned counsel's say.

6. Be that as it may, prima facie case made out for issue of notice.

7. Issue notice to respondents returnable in a fortnight i..e, returnable by 31.03.2022. Private notice permitted.

8. List on 31.03.2022.

3. The short forms and abbreviations used in the earlier

proceedings dated 18.03.2022 shall continue to be used in the instant

order also for the sake of convenience and clarity. Before proceeding

further, it is deemed appropriate to scan and reproduce Schedule 1 of

the primary contract as there is a reference to the same in Clause 19.

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A scanned reproduction of Schedule 1 of primary contract is as follows:

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4. As would be evident from the subsequent proceedings

made in the listing on 20.04.2022, the factum of a notice from the Lok

Adalat qua Combined Court Complex, Alandur was brought up and it is

today clarified that the notice from the Lok Adalat pertains to

proceedings under Section 138 of Negotiable Instruments Act, 1881

and it is not a suit. Be that as it may, there is no disputation or

disagreement between the parties about existence of arbitration

agreement i.e., Clauses 18 and 19 of the primary contract. However,

the claim of the petitioner is being disputed by the respondents on

merits. Though there are disputations and contestations regarding the

claim, learned counsel on both sides submit that they would explore

the possibility of settlement. This will not come in the way of

appointment of sole arbitrator as Section 30 of A and C Act provides

the requisite legal umbrella in this regard.

5. The legal landscape within which a legal drill under Section

11 of A and C Act has to be performed is qua statutory perimeter

sketched by sub- section (6A) thereat. This has been elucidatively

explained by Hon'ble Supreme Court in the oft-quoted Mayavati

Trading case law i.e., Mayavati Trading Pvt. Ltd., Vs. Pradyuat

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Deb Burman reported in (2019) 8 SCC 714. Relevant paragraph in

Mayavati Trading case law is Paragraph 10 and the same reads as

follows:

'10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgments, as Section 11(6-A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera SA.'

6. Aforementioned paragraph 10 of Mayavati Trading case

law takes this Court to Duro Felguera case law i.e., Duro Felguera

Vs. Gangavaram Port Ltd., reported in (2017) 9 SCC 729, relevant

paragraphs in Duro Felguera are paragraphs 47 and 59 and the same

read as follows:

'47. What is the effects of the change introduced by the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as 'the 2015 Amendment' ) with particular reference to Section 11(6) and the newly added

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Section 11(6-A) of the Arbitration and Conciliation Act, 1996, (hereinafter referred to as “the 1996 Act”) is the crucial question arising for consideration in this case.'

'59. The scope of the power under Section 11 (6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. (supra) and Boghara Polyfab (supra). This position continued till the amendment brought about in 2015. After the amendment, all that the Courts need to see is whether an arbitration agreement exists - nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court’s intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11 (6A) ought to be respected. '

7.The narrative discussion thus far means that the legal drill

on hand is largely confined to examination of existence of arbitration

agreement between the parties. In the case on hand, the claim is

disputed but existence of arbitration agreement is not in dispute.

However, the possibility of settling the disputed claim is also being

explored, which can continue before the sole arbitrator owing to

Section 30 of A and C Act.

8. As there is no disputation, disagreement or contestation

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about the existence of arbitration agreement, Mr.A.J.Jawad, Advocate,

No.5/1, Jagajeevan Ram Avenue, East Coast Road, Injambakkam,

Chennai - 600 115 (Mobile No.9840087114) is appointed as sole

arbitrator. Learned sole arbitrator is requested to enter upon

reference, adjudicate the arbitrable disputes that have arisen between

petitioner and respondents qua primary contract and render an award.

The arbitration shall be conducted in the Arbitration and Conciliation

Centre under the aegis of this Court (MHCAC) in accordance with the

Madras High Court Arbitration Proceedings Rules, 2017 and Hon'ble

Arbitrator's fee shall be as per Madras High Court Arbitration Centre