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Issues: (i) Whether the Court, in a petition under Section 9 of the Arbitration and Conciliation Act, 1996, could grant relief affecting the mortgaged property claimed by a non-party secured creditor and restrain enforcement of that creditor's rights; (ii) Whether, in view of the admitted arbitration agreement, the disputes should be referred to arbitration with the petition being treated as an application under Section 17 of the Arbitration and Conciliation Act, 1996, along with a direction for disclosure of assets.
Issue (i): Whether the Court, in a petition under Section 9 of the Arbitration and Conciliation Act, 1996, could grant relief affecting the mortgaged property claimed by a non-party secured creditor and restrain enforcement of that creditor's rights.
Analysis: The relief sought to permit sale of the scheduled property could not be granted because the property was subject to a mortgage and the title deeds stood deposited with the bank. The legality and effect of the mortgage, in light of the covenants relied upon by the petitioner, required adjudication before an appropriate forum where the secured creditor was a party. In proceedings under Section 9, no finding could be returned on the mortgage rights vis-a -vis the bank. At the same time, the undertaking recorded from the respondents continued to bind them, but the petition was only against the respondents and could not operate to restrain the secured creditor from proceeding in accordance with law.
Conclusion: The Court declined to adjudicate the mortgage controversy in Section 9 proceedings and clarified that the secured creditor was not restrained from enforcing its rights over the mortgaged property.
Issue (ii): Whether, in view of the admitted arbitration agreement, the disputes should be referred to arbitration with the petition being treated as an application under Section 17 of the Arbitration and Conciliation Act, 1996, along with a direction for disclosure of assets.
Analysis: Since the existence of the arbitration agreement and the arbitrable disputes were not in dispute, the Court appointed a common sole arbitrator to decide the disputes arising out of the personal guarantees. The pending petition was directed to be treated as an application under Section 17 to be considered by the arbitrator. The respondents were also directed to file an affidavit disclosing their assets in accordance with the cited disclosure requirement, and the interim undertaking was ordered to continue till consideration by the arbitrator.
Conclusion: The disputes were referred to arbitration, the petition was treated as a Section 17 application, and asset disclosure was directed.
Final Conclusion: The matter was finally disposed of by referring the disputes to arbitration, preserving interim restraint against the respondents, while leaving the parties to pursue their respective rights and remedies before the arbitral forum and the appropriate forum concerning the mortgaged property.
Ratio Decidendi: A Court exercising Section 9 jurisdiction will not determine the validity or effect of a mortgage involving a non-party secured creditor, and where an arbitration agreement is admitted, the dispute may be referred to arbitration with interim relief to be considered under Section 17 by the arbitrator.
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