2015 (9) TMI 1765 - HC - Indian Laws

High Court appoints receiver for mortgaged property under Section 9 Arbitration Act despite jurisdictional objections

Aditya Birla Finance Limited Versus Carnet Elias Fernandes, Mrs. Everlyn C. Fernandes

The Bombay HC dismissed jurisdictional objections and granted interim relief under Section 9 of the Arbitration Act, appointing a Court Receiver for ... Seeking appointment of the Court Receiver of the property - respondents have committed default in making repayment of the loan amount with interes - whether this court has jurisdiction to entertain, try and dispose off the present petition or not? - HELD THAT:- A perusal of the agreement entered into between the parties and more particularly clauses 22.1 to 22.6 clearly indicates that the parties have agreed that the dispute between the parties shall be referred to the arbitration. The venue for conducting the arbitration proceedings shall be at Mumbai. The dispute shall be subject to exclusive jurisdiction of the courts in the city of Mumbai. A perusal of the record indicates that the respondents had raised the issue of jurisdiction before the learned arbitrator which has been already negatived by the learned arbitrator. The said arbitration proceedings are still pending before the learned arbitrator. This court has already taken a view in case of Tata Capital Financial Services Limited vs. Deccan Chronicle Holdings Limited and Anr. [2013 (2) TMI 839 - BOMBAY HIGH COURT] 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. 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. The respondents have committed default in making repayment of the loan under the facility agreement. The petitioner has good chances of succeeding in the arbitral proceedings. According to the petitioner, as on 31st March, 2015, the respondents are liable to pay to the petitioner a sum of Rs. 23,65,07,643/- with further interest thereon at the rate of 12.5% per annum from 1st April, 2015 till payment. The petitioner has thus made out a case of appointment of the Court Receiver so as to secure the substantial amount of claim of the petitioner. Such relief for appointment of Court Receiver can be granted by this court under section 9(ii)(d) and (e). Arbitration petition is disposed of. Issues Involved:1. Jurisdiction of the Court to entertain the petition.2. Nature of the proceedings under Section 9 of the Arbitration and Conciliation Act, 1996.3. Alleged forgery and fabrication of the facility agreement.4. Availability of alternate remedy under Section 17 of the Arbitration Act.5. Appointment of Court Receiver and interim measures.Issue-wise Detailed Analysis:1. Jurisdiction of the Court:The primary issue was whether the Bombay High Court had jurisdiction to entertain the petition filed under Section 9 of the Arbitration and Conciliation Act, 1996. The agreement between the parties, specifically clauses 22.1 to 22.6, stipulated that the venue for arbitration proceedings would be Mumbai, and the courts in Mumbai would have exclusive jurisdiction over the disputes. The respondents had previously contested this jurisdiction before the arbitrator, who ruled against them. The Court found that the material part of the cause of action arose within its jurisdiction since the agreement was executed through the petitioner's Mumbai branch, and the arbitration was agreed to be held in Mumbai. Thus, the Court held that it had jurisdiction to entertain the petition.2. Nature of the Proceedings:The respondents argued that the proceedings were akin to a suit for land, as the mortgaged property was situated outside Mumbai, and thus required leave under clause 12 of the Letters Patent. The Court clarified that proceedings under Section 9 are not equivalent to a suit for land but are for interim measures. The reliefs sought were not substantive or final but interim measures to secure the petitioner's claims. The Court relied on previous judgments to assert that no leave under clause 12 was necessary for Section 9 petitions if the material part of the cause of action arose within its jurisdiction.3. Alleged Forgery and Fabrication:The respondents alleged that the facility agreement was forged, claiming the substitution of 'Bhopal' with 'Mumbai' in the jurisdiction clause. They had filed a criminal complaint and a writ petition in Madhya Pradesh. The Court noted that the arbitrator had already rejected the respondents' plea of forgery and ruled that the proceedings could be held in Mumbai. The Court decided not to delve into the validity of the arbitrator's ruling on jurisdiction at this stage.4. Availability of Alternate Remedy:The respondents contended that the petitioner had an efficacious remedy under Section 17 of the Arbitration Act and thus should not seek interim measures under Section 9. The Court dismissed this argument, stating that Section 9 provides broader powers to the court than Section 17 to grant interim measures, including appointing a Court Receiver. The availability of interim reliefs under Section 17 does not preclude a party from seeking relief under Section 9.5. Appointment of Court Receiver and Interim Measures:The Court found that the petitioner had made a prima facie case for the appointment of a Court Receiver due to the respondents' defaults in repayment and the dishonoring of post-dated cheques. The petitioner demonstrated a likelihood of success in the arbitration proceedings. The Court expressed concern over the potential alienation of the respondents' assets, which could frustrate the petitioner's claims. Consequently, the Court appointed the Court Receiver over the property described in Exhibit 'U' to the petition, with directions to appoint the respondents as agents on usual terms or take physical possession if the agency was not accepted. An injunction was also granted against the respondents from creating third-party rights in the properties until the Receiver took possession. The respondents were directed to disclose their assets on oath within four weeks.Conclusion:The Court concluded that it had jurisdiction to entertain the petition under Section 9, granted interim measures to secure the petitioner's claims, and appointed a Court Receiver over the mortgaged property. The proceedings were not considered a suit for land, and the Court's powers under Section 9 were deemed broader than those under Section 17, justifying the relief granted.