TaxTMI 
TaxTMI 
2012 (10) TMI 459
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....to the licensor and licensee, by the other flat owner (that is RV Appliances in respect of agreement relating to 9A and Capstone in respect of agreement relating to 9B) and SBI as confirming parties 1 and 2. 4. On the same day (5.4.1996) a tripartite deposit agreement was entered among RV Appliances and Capstone as the first party, appellant as the second party and SBI as the third party. Under the said agreement, the appellant paid a refundable security deposit of Rs.6.5 crores to Capstone and RV Appliances (at the rate of Rs.3.25 crores for each flat). Clause (E) of the said agreement confirmed that the appellant made the said deposit and Capstone and RV Appliances received the said deposit on the basis of the terms and conditions recorded in the two leave and licence agreements and the deposit agreement; and that the three agreements together formed a single integral transaction, inseparable, co-extensive and co-terminus in character. Out of the said deposit of Rs.6.5 crores, a sum of Rs.5.5 crores was directly paid to SBI on the instructions of Capstone and RV Appliances towards repayment of the loan taken by Capstone and Real Value and the balance of Rs.1 crore account....
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....der the loan facility, the Party of the Second Part shall, to safeguard its interest in retaining the right to use and occupy the said Flats, have an option to pay the Parties of the Third Part the sum(s) so becoming due and remaining unpaid by the Parties of the First Part, on their behalf." Clauses (9) and (10) provide that at the end of the licence period, Capstone and R V Appliances shall jointly and severally be liable to refund the deposit amount along with interest thereon from the date of expiry of the licence to date of actual payment Clause (16) of the deposit agreement provided for arbitration and is extracted below: "In case of any dispute with respect to creation and enforcement of charge over the said shares and the said Flats and realization of sales proceeds therefrom, application of sales proceeds towards discharge of liability of the Parties of the First Part to the parties of the Second Part and exercise of the right of the Party of the Second Part to continue to occupy the said Flats until entire dues as recorded in Clause 9 and 10 hereinabove are realized by the party of the Second Part, shall be referred to an Arbitrator who shall be retired Judge of M....
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....r (a) by such date as may be fixed by the Court for redemption of the mortgage and in the event of the first defendant failing to make payment by that date, the suit premises be sold by and under the orders and directions of the Court in enforcement and realization of the mortgage thereon and the net realization thereof be paid over to the plaintiff in or towards satisfaction of its claim herein; (d) for a personal decree against the first defendant to the extent of any deficiency in sale realization; (e) that the second defendant be ordered to vacate the suit premises and hand over possession thereof to the plaintiff to enable the plaintiff effectively to enforce and realize its security thereon." 8. On a notice of motion taken out by SBI seeking interim relief, the High Court issued the following order on 25.11.1999 : "The Defendant No.2 shall continue to occupy Flat No.9A and garages Nos. 45 to 47 situate at Brighton, 68D, Napean Sea Road, Mumbai but shall not create any third party right or interest of any nature whatsoever in the said flat nor shall hand over possession of the said flat to defendant No.1 or 3 till further order. Mr. Dharmadhikari, learned counsel for first....
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....e. This court while granting leave on 28.8.2002 stayed the further proceedings in the suit. 11. The appellant contends that the parties to the suit were all parties to the deposit agreement containing the arbitration agreement. The claim of the SBI was for enforcement of the charge/mortgage over flat No.9A and realization of the sale proceeds therefrom, which was specifically mentioned as a dispute which was arbitrable. Having regard to the clear mandate under section 8 of the Act, the court ought to have referred the parties to arbitration. SBI supported the order 12. In S.B.P & Co. vs. Patel Engineering Ltd - 2005 (8) SCC 618, this Court held thus : "When the defendant to an action before a judicial authority raises the plea that there is an arbitration agreement and the subject matter of the claim is covered by the agreement and the plaintiff or the person who has approached the judicial authority for relief disputes the same, the judicial authority, in the absence of any restriction in the Act, has necessarily to decide whether, in fact, there is in existence a valid arbitration agreement and whether the dispute that is sought to be raised before it is covered by the ....
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....ischarge of liability of Capstone and RV Appliances to the appellant; and (d) disputes relating to exercise of right of the appellant to continue to occupy the flats until the entire dues as stated in clauses 9 and 10 of the deposit agreement are realised by the appellant. 15. The suit has been filed by SBI to enforce the mortgage to recover the amounts due to it. In that context, SBI has also sought delivery of vacant possession. The enforcement of the charge/mortgage over the flat, realisation of sale proceeds therefrom and the right of the appellant to stay in possession till the entire deposit is repaid, are all matters which are specifically mentioned in clause 16 as matters to be settled by arbitration. Therefore, the subject matter of the suit falls within the scope of the arbitration agreement. Re : Question No. (ii) 16. The appellant filed a detailed affidavit opposing the application for interim injunction on 15.12.1999. Thereafter the appellant filed the application under section 8 of the Act on 12.10.2001. On the date of filing of the application under section 8, the appellant had not filed the written statement. Section 8 of the Act provides that a judicial authori....
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.... opposing the prayer for interim injunction, the restriction contained in Sub-section (1) of Section 8 was not attracted. Disclosure of a defence for the purpose of opposing a prayer for injunction would not necessarily mean that substance of the dispute has already been disclosed in the main proceeding. Supplemental and incidental proceeding are not part of the main proceeding. They are dealt with separately in the Code of Civil Procedure itself. Section 94 of the Code of Civil Procedure deals with supplemental proceedings. Incidental proceedings are those which arise out of the main proceeding. In view of the decision of this Court in Food Corporation of India vs. Yadav Engineer & Contractor - 1982 (2) SCC 499, the distinction between the main proceeding and supplemental proceeding must be borne in mind. ........ Waiver of a right on the part of a defendant to the lis must be gathered from the fact situation obtaining in each case. In the instant case, the court had already passed an ad interim ex pare injunction.The Appellants were bound to respond to the notice issued by the Court." 18. In this case, the counter affidavit dated 15.12.1999, filed by the appellant in reply to th....
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....in this case show that the plaintiff in the suit had filed an application for temporary injunction and appointment of Receiver and that was pending for some time. Thereafter, talks were in progress for arriving at a settlement out of court. When such talks failed, the appellant filed an application under section 8 of the Act before filing the written statement or filing any other statement which could be considered to be a submission of a statement on the substance of the dispute. The High Court was not therefore justified in rejecting the application on the ground of delay. Re : Question (iv) 20. The nature and scope of issues arising for consideration in an application under section 11 of the Act for appointment of arbitrators, are far narrower than those arising in an application under section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application under section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of `arbitrability' or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would le....
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....he arbitral tribunal. 22. Arbitral tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of arbitral tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the Legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by a public fora (courts and Tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes. The well recognized examples of non-arbitrable disputes are : (i)....
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.... "Not all matter are capable of being referred to arbitration. As a matter of English law certain matters are reserved for the court alone and if a tribunal purports to deal with them the resulting award will be unenforceable. These include matters where the type of remedy required is not one which an arbitral tribunal is empowered to give." The subsequent edition of Russell [23rd Edition, page 470, para 8.043] ] merely observes that English law does recognize that there are matters which cannot be decided by means of arbitration. Mustill and Boyd in their Law and Practice of Commercial Arbitration in England [2nd - 1989 Edition], have observed thus : "In practice therefore, the question has not been whether a particular dispute is capable of settlement by arbitration, but whether it ought to be referred to arbitration or whether it has given rise to an enforceable award. No doubt for this reason, English law has never arrived at a general theory for distinguishing those disputes which may be settled by arbitration from those which may not. ....... Second, the types of remedies which the arbitrator can award are limited by considerations of public policy and by the fact that he is....
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.... a company. The matter which is pending before the High Court in which the application was filed by the petition herein was relating to winding up of the Company. That could obviously not be referred to arbitration and, therefore, the High Court, in our opinion was right in rejecting the application." (Emphasis supplied) 26.2. A different perspective on the issue is found in Olympus Superstructures Pvt Ltd vs. Meena Vijay Khetan and others - 1999 (5) SCC 651, where this Court considered whether an arbitrator has the power and jurisdiction to grant specific performance of contracts relating to immovable property. This Court held : "We are of the view that the right to specific performance of an agreement of sale deals with contractual rights and it is certainly open to the parties to agree - with a view to shorten litigation in regular courts - to refer the issues relating to specific performance to arbitration. There is no prohibition in the Specific Relief Act, 1963 that issues relating to specific performance of contract relating to immovable property cannot be referred to arbitration. Nor is there such a prohibition contained in the Arbitration and Conciliation Act, 1996 as con....
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....lusive jurisdiction to grant probate and an arbitral tribunal will not have jurisdiction even if consented concluded to by the parties to adjudicate upon the proof or validity of the will. 27. An agreement to sell or an agreement to mortgage does not involve any transfer of right in rem but create only a personal obligation. Therefore if specific performance is sought either in regard to an agreement to sell or an agreement to mortgage, the claim for specific performance will be arbitrable. On the other hand, a mortgage is a transfer of a right in rem. A mortgage suit for sale of the mortgaged property is an action in rem, for enforcement of a right in rem. A suit on mortgage is not a mere suit for money. A suit for enforcement of a mortgage being the enforcement of a right in rem, will have to be decided by courts of law and not by arbitral tribunals. 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 Transfer of Property Act, 1882 relating to suits on mortgages (section 85 to 90, 97 and 99) and also provides for implementation of some of the other provisions of that Act (section ....
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....l tribunal will not be able to do so. 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 mortgagor/defendant or other persons entitled to receive the same. An arbitral tribunal will not be able to do so. (iv) 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 f....
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....e final award made by the arbitrator, after detailed accounting etc. could be compared to the final decree 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. 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 27 (ii) above), who have the right to participate in the proceedings relating to the enforcement of the mortgage, vis-a-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. The following observations of this court in a somewhat different context, in Sukanya Holdings (P) Ltd. v. Jayesh H.Pandya - 2003 (5) SCC 531 are relevant: "The next....