2016 (8) TMI 1434 - HC - Indian Laws

Arbitration Agreement Valid Over Pending RDB Act Proceedings.

The Court held that the arbitration agreement was valid and enforceable despite pending proceedings under the RDB Act. It ruled that the DRT's ... Appointment of an arbitrator - Recovery of debts - Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. HELD THAT:- The Arbitration & Conciliation Act, 1996 is an amalgam of the Arbitration Act, 1940, the Arbitration (Protocol & Convention) Act, 1937 and the Foreign Awards (Recognition & Enforcement) Act, 1961. It is a consolidating and amending statute. The object of the Act is to minimize the supervisory role of Court in relation to matters covered by arbitration. The provisions of Section 5 of the Act limit interference of judicial authorities in matters governed by Part-I of the Act and no judicial authority in terms of the said provisions can interfere except where so provided in Part-I of the said Act. By virtue of the said provision, all other statutes have been excluded from operation insofar as they relate to intervention by any judicial authority in matters covered by Sections 1 to 43 of the Act. This Act of 1996 has been held to be a self-contained code. Arbitration is not a common law right. It is a right created by statute. The rights and remedies are created by the statute. Arbitration is consensual. When the parties have voluntarily agreed to have their disputes resolved by Arbitration, it necessarily implies that they have consciously waived their right to have their disputes adjudicated by any other authority or by any other machinery - the amended provision of Section 19 of the Debt Recovery Act, namely Section 19(8) does not give an absolute power to a constituent to have the counter-claim adjudicated by the Tribunal as the subsequent sub-section, namely Section 19(11) of the RDB Act gives power to the Tribunal to pass an order for exclusion of the counter-claim. There is no provision in the Act for transfer of suits and proceedings, except section 31, which relates to suit/proceeding by a bank or financial institution for recovery of a debt. If the petitioner instead of filing an application under Section 9 of the Arbitration and Conciliation Act, 1996 could have filed a suit prior to initiation of recovery proceeding which would be otherwise maintainable there is no reason to conclude that the application for appointment of arbitration in terms of the arbitration clause in the agreement would be barred - Moreover, the application under Section 9 was filed prior to the filing of the recovery proceeding and the respondent has participated in such proceeding and has received substantial benefits in terms of the orders passed in such proceeding. In view of a clear finding that there is an arbitration agreement between the parties and the party has approached the appropriate High Court, the application under Section 11 of the Arbitration and Conciliation Act is allowed. Issues Involved:1. Validity of arbitration proceedings when a proceeding under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act) is pending.2. Jurisdiction of the Debt Recovery Tribunal (DRT) versus arbitration.3. Applicability of Sections 5 and 8 of the Arbitration and Conciliation Act, 1996 in the context of the RDB Act.4. Impact of Section 34 of the RDB Act and Section 34 of the SARFAESI Act on arbitration agreements.5. Precedent value of previous judgments and their binding effect.Detailed Analysis:1. Validity of Arbitration Proceedings:The central issue was whether an arbitration proceeding could be initiated based on an arbitration clause in an agreement when a proceeding under Section 19 of the RDB Act was pending before the DRT. The petitioner argued that the parties had voluntarily agreed to arbitration, invoking Sections 5 and 8 of the Arbitration and Conciliation Act, 1996, which precluded the Tribunal from proceeding with the Bank's application under Section 19 of the RDB Act. The petitioner relied on precedents affirming the right to arbitration despite the RDB Act, including decisions in HDFC Bank Ltd. Vs. Bhagwandas Auto Finance Limited and Nahar Industrial Enterprises Limited Vs. Hong Kong and Shanghai Banking Corporation.2. Jurisdiction of DRT versus Arbitration:The respondent contended that the RDB Act is a special statute, and all disputes within its purview must be adjudicated by the DRT. They emphasized that Section 34 of the RDB Act and Section 34 of the SARFAESI Act barred arbitration for disputes falling within the jurisdiction of the DRT. The respondent cited the decision in Union of India & Ors. Vs. Alok Kumar, which interpreted 'other authority' in Section 18 of the RDB Act to include arbitrators.3. Applicability of Sections 5 and 8 of the Arbitration and Conciliation Act, 1996:The petitioner argued that the arbitration proceeding commenced before the Bank's application under Section 19 of the RDB Act and that the Bank had waived its right to object by participating in the arbitration proceedings and accepting payments. The petitioner cited the decision in HDFC Bank Ltd. (supra), which held that a proceeding under Section 9 of the Arbitration and Conciliation Act, 1996, is not precluded by the filing of a recovery proceeding under the RDB Act.4. Impact of Section 34 of the RDB Act and Section 34 of the SARFAESI Act:The respondent argued that these sections rendered the arbitration clause invalid and unenforceable, as they barred any authority, including an arbitrator, from adjudicating disputes within the DRT's jurisdiction. They referenced the decision in Surya News Print & Papers Pvt. Ltd. Ghantasala & Ors. Vs. Branch Manager, State Bank of India, which held that the SARFAESI Act and RDB Act prevail over the Arbitration and Conciliation Act.5. Precedent Value of Previous Judgments:The petitioner argued that the judgments in HDFC Bank Ltd. and other cases remained binding precedents unless set aside by the Supreme Court. The Court agreed, stating that the decision of a Coordinate Bench, affirmed by the Division Bench, remains binding unless overturned by the Supreme Court. The Court emphasized judicial propriety and discipline, citing Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association, Madras, which distinguished between quashing an order and staying its operation.Conclusion:The Court concluded that the arbitration agreement was valid and enforceable, notwithstanding the pending proceedings under the RDB Act. It held that the DRT's jurisdiction does not preclude arbitration, especially when the arbitration proceeding commenced before the DRT application. The Court appointed an arbitrator and directed the arbitration to proceed, emphasizing the binding nature of the precedents cited by the petitioner.