TaxTMI 
TaxTMI 
2016 (8) TMI 1434
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....a, learned Senior Counsel appearing on behalf of the petitioner submits that the parties have voluntarily agreed to have all there disputes and differences adjudicated by way of arbitration and in view of Sections 5 and 8 of the Arbitration and Conciliation Act, 1996, the Tribunal is precluded from proceeding with the application filed by the Bank under Section 19 of the RDB Act. It is submitted that although in the event it is contended and held that Section 5 would not apply to a proceeding before the Tribunal even then by reason of an agreement between the parties, the bank cannot resile from having the said dispute adjudicated by arbitration. It is submitted that the parties have voluntarily agreed to have their disputes resolved through arbitration notwithstanding the introduction of the 1993 Act and the Bank having agreed to such procedure and mode of adjudication has consciously abandoned and/or waived its right to claim an adjudication otherwise then by way of an arbitration. The learned Senior Counsel has relied upon the decision of Co-ordinate Bench in HDFC Bank Ltd. Vs. Bhagwandas Auto Finance Limited & Anr., a Division Bench judgment dated 21st January, 201....
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....e this Court on 1st September, 2015 and October 9, 2015 and particularly in enjoying the benefit of substantial payment under the consent order of September 1, 2015. Per Contra, Mr. Ratnanko Banerjee, the learned Senior Counsel appearing on behalf of the Bank submits that although there may be an arbitration agreement between the parties but having regard to Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, 1993 and Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (hereinafter referred to as the "SARFAESI Act") such arbitration clause is invalid and unenforceable. It is submitted that in view of the aforesaid legislations, the bank and/or a financial institution can recover money and/or enforce its security interest only by invoking the provisions under the said two Acts and not by any other means, meaning thereby that no other remedy is available to the Bank except in taking recourse to the provisions of the said two Acts. Mr. Banerjee has laid much emphasis on Section 34 of the SARFAESI Act, 2002 in order to impress upon this Court that the phrase 'any action t....
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....(63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984) [, the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and the Small Industries Development Bank of India Act, 1989 (39 of 1989)]." SRFAESI Act, 2002 S.34. Civil court not to have jurisdiction. - No Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)." It is submitted that Section 18 of the RDB Act refers to "no court or other authority" which includes an arbitrator. The arbitrator is an authority within the meaning of Section 18 of the RDB Act and in this regard he has relied upon a decision of the Hon'ble Supreme Court in Union of India & Ors. Vs. Alok Kumar reported at (2010) 5 SCC 349. Mr. Banerjee has ref....
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....axiomatic in civil law. A plaint now may be rejected on the basis of a circumstance that may not be evident from the plaint and the partial rejection of a plaint may be possible to throw out such matters which are capable of adjudication by the Debts Recovery Tribunal under the 1993 Act and retain such matters that are not. In support of the contention that RDB Act, 1993 and SARFAESI Act, 2002 are special statute in relation to the Arbitration and Conciliation Act, 1996, reference was made to a Single Bench decision of Bombay High Court in Kingfisher Airlines Limited Vs. Prithvi Malhotra reported at (2013) 1 AIR Bom R 255. It is submitted that in the said decision it was held that the industrial dispute is rendered inarbitrabel and, accordingly, a party cannot invoke Section 8 of the Arbitration and Conciliation Act, 1996 even if they had agreed upon arbitration as the forum for settlement of disputes between them. In reply, Mr. Abhrajit Mitra, the learned Senior Counsel has submitted that the pendency of the Special Leave Petition cannot completely wipe out the law laid down by the Single Judge Bench as well as the Division Bench inasmuch as the said order of t....
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.... and the 1993 Act does not expressly exclude the provisions of the Arbitration and Conciliation Act, 1996 as amended in 2015 the arbitration is not precluded from hearing the dispute. Moreover, by reason of the fact that similar issue was raised earlier and has been answered against the financial institution, it is no more open for the petitioner to argue that the other authority would include an arbitrator. In dealing with Sudha Khemka (supra) it is submitted that the issue there is entirely different, as the learned Single Judge was not called upon to decide the issue involved in this proceeding. It is submitted that State Bank of India (supra) was not applicable in the instant case as the issue, there was whether a constituent's claim could referred to Debts Recovery Tribunal so that both the claim and counter-claim herd by the DRT in order to avoid multiplicity of proceedings. The decision in Surya News Print (supra) of the Division Bench of the Orissa High Court is distinguished by submitting that issue before the Division Bench was whether there was an existence of an arbitration agreement. In answering the said issue, the Division Bench ....
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....solely conferred on the tribunals named in the 1993 Act, no question arises of such claim being carried by way of an arbitral reference. There is no merit in the respondents' assertion on such score. Nothing in the 1993 Act precludes an arbitral reference being carried by a bank or a financial institution in respect of a matter that is capable of being brought as a claim under Section 19 of the 1993 Act. The exclusivity that is conferred on the Debts Recovery Tribunal, subject to the pecuniary floor-limit of Rs. 10 lakh, is qua the civil court. Historically, in the early 1980s banks and financial institutions found it suffocating to operate as funds and secured assets remained blocked in protracted litigation, whether they were recovery proceedings filed in regular courts by them or genuine or frivolous actions instituted by the constituents. Banking business was then almost completely State-controlled and the worry was in public funds remaining entangled in time-consuming and ruinous court proceedings. There was a Tiwari Committee set up which recommended setting up independent tribunals for recovering debts of banks and financial institutions. The Narasimham Committee report th....
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....by virtue of its agreement with the bank to refer the disputes to arbitration, there may not be any juridical impropriety for a bank to voluntarily give up its right to approach a Debts Recovery Tribunal pursuant to an arbitration agreement covering the same subject. If the jurisdiction of the Court can be ousted by consensus (actually, the jurisdiction is not ousted; the Court receiving the action holds the parties to their bargain by specifically enforcing the arbitration agreement), there is no reason to doubt that a similar pre-arranged consensual forum can be substituted for the Debts Recovery Tribunal. A party to an arbitration agreement may waive its right thereunder, but if the agreement is sought to be specifically enforced the judicial authority in seisin of the action would ordinarily enforce the agreement. There is no reason to suspect that if the petitioner bank carried a claim referable to arbitration to a Debts Recovery Tribunal, the respondents could not successfully enforce the arbitration agreement by way of an application under Section 8 of the Arbitration and Conciliation Act, 1996. If the provisions of a statute have to be construed not as theorems of Euclid ....
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....e to such Tribunal: Provided that nothing in this sub-section shall apply to any appeal pending as aforesaid before any court. ..." If the bar under Section 18 of the said Act were to be understood to apply to arbitral proceedings covering the subject matter of a claim that can be adjudicated under the provisions of the Act, there would be no logic in matters being transferred only from Courts to the tribunals without the relevant provision referring to the transfer of arbitration references to the tribunals. The expression in Section 31(1) of the Act is "every suit or other proceeding pending before any court." A reference before an arbitral tribunal is certainly not a suit or other proceeding pending before any Court. Apart from the common sense logic that an enactment for the benefit of a class of claimants may not be easily interpreted to bar such claimants from referring their claims to arbitration unless expressly excluded, Section 31(1) of the Act is significantly instructive in showing that the said Act does not rule out a claim capable of adjudication under the Act to be taken before an arbitral tribunal by the consensus of the relevant parties. The responden....
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....sidered the nature of the relief that a party can have in an arbitration proceeding, that is to say, the arbitrability of a dispute in Paragraph 34 of the said report which reads:- "34. The term 'arbitrability' has different meanings in different contexts. The three facets of arbitrability, relating to the jurisdiction of the arbitral tribunal, are as under: (i) Whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the arbitral tribunal) or whether they would exclusively fall within the domain of public for a (courts). (ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the 'excepted matters' excluded from the purview of the arbitration agreement. (iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the arbitral tribunal, or whether they do not arise out of the ....
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....of that section. 33. But where the issue of 'arbitrability' arises in the context of anapplication under Section 8 of the Act in a pending suit, all aspects of arbitrability have to be decided by the court seized of the suit, and cannot be left to the decision of the Arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8of the Act, to refer the parties to arbitration, if the subject matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal. 34. The term 'arbitrability' has different meanings in different contexts.The three facets of arbitrability, relating to the jurisdiction of the arbitral tribunal, are as under: (i) whether the disputes are capable of adjudication and settlement byarbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the arbitral tribunal) or whether they would exclusively fall within the domain of public fora ....
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....ters; (iv) insolvency and winding up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes. 37. It may be noticed that the cases referred to above relate to actionsin rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and judgment in rem refers to a judgment that determines the status or condition of....
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....ular enactment creates special rights and obligations and gives special powers to the tribunals which are not with the civil courts, those disputes would be non-arbitrable. It is a matter of common knowledge that Rent Control Act grants statutory protection to the tenants. Wherever provisions of Rent Control Act are applicable, it overrides the contract entered into between the parties. It is the rights created under the Act which prevail and those rights are not enforceable through civil courts but only through the tribunals which is given special jurisdiction not available with the civil courts. Likewise, Industrial Disputes Act, 1947 creates special rights in favour of the workman or employers and gives special powers to the industrial adjudicators/tribunals to even create rights which powers are not available to civil courts. Obviously such disputes cannot be decided by means of arbitral tribunals which are substitute of civil courts. On the other hand, in so far as tribunal ike Debt Recovery Tribunal is concerned, it is simply a replacement of civil court. There are no special rights created in favour of the banks or financial institutions. There are no special powers given ....
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....in are not permissible to be done". In other words, a letters patent appeal would be excluded by the application of one of the general principles that where the special Act sets out a self-contained code the applicability of the general law procedure would be impliedly excluded....." (emphasis added) In Girnar Traders Vs. State of Maharashtra reported at (2011) 3 SCC 1 it was held:- 79. The Expression 'complete code in itself' has not been defined precisely. However, it will be of some help to understand what the word 'code' means. It has been explained in P. Ramanatha Aiyar's 'The Law Lexicon' (2nd Edn. 1997) as under: 'A general collection or compilation of laws by public authority; a system of law; a systematic and complete body of law, on any subject such as Civil Procedure Code, Code of Criminal Procedure, Penal code. Etc. ...The code is broader in its scope, and more comprehensive in its purposes. Its general object is to embody, as near as practicable, all the law of the State, on any particular subject. It is more than evidentiary of the law; it is the law itself.' 80. 'Complete' further adds a degree of certainty to the code. It....
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....utes adjudicated by any other authority or by any other machinery. The bank was in a superior bargaining position than the constituents. The financial institution with its eyes wide open has agreed to include the arbitration clause in the loan document notwithstanding the fact that two legislations with regard to Recovery of Debts and Enforcement of Security Interest were in force and recourse to such acts were available to the bank, in case the account becoming non-performing assets. The bank, however, had voluntarily agreed to have the dispute resolved through arbitration. Section 34 of both the RDB Act does not prevent a constituent to file a suit for any breach of the loan agreement. A constituent is not required to wait until the bank files a recovery proceeding against the constituent before the Debt Recovery Tribunal. Moreover, 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 c....
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....peration of the order impugned and an order quashing the order itself in the following words:- "While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order. Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. This means that if an order passed by the appellate authority is quashed and the matter is remanded, the result would be that the appeal which had been disposed of by the said order of the appellate authority would be restored and it can be said to be pending before the appellate authority after the quashing of the order of the appellate authority. The same cannot be said with regard to an order staying the operation of the order of the appellate authority because ....
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....ded to cover a vast field and there is no indication of the mind of the framers that the expression must be given a restricted or a narrow meaning. The meaning of the word 'authority' was discussed in Union of India (supra) in Paragraphs 32 to 37 which reads:- "32. Even the Indian Railway Act does not define the term "authority" though this expression has been used in conjunction with other words in the Rules as well as the Act. In absence of any specific definition or meaning we have to rely upon understanding of this expression in common parlance. In common parlance, the word `authority' is understood to be, power to exercise and perform certain duties or functions in accordance with law. Authority may vest in an individual or a person by itself or even as a delegatee. It is the right to exercise power or permission to exercise power. Such permission or right could be vested in an individual or a body. It can also be in conferment of power by one person to another. This expression has been used differently in different statutes and can be given a different meaning or connotation depending upon the context in which it is used. The purpose and ob....
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....of regulation. Example: should apply for a permit to the permitting authority." 37. In Law Lexicon, 2nd Edition, 1997 pg. 171, the word `authority' has been explained and elucidated as follows: "Authority. - * * * A person or persons, or a body, exercising power of command; generally in the plural: as, the civil and military authorities. Power or admitted right to command or to act, whether original or delegated: as, the authority of a prince over subjects and of parents over children; the authority of an agent to act for his principal. An authority is general when it extends to all acts, or all connected with a particular employment, and special when confirmed to a single act. 'AUTHORITY, is nothing but a power to do something; it is sometimes given by word, and sometimes by writing; also it is by writ, warrant, commission, letter of attorney & c. and sometimes by law. The authority that is given must be to do a thing lawful: for if it be for the doing anything against law, as to beat a man, take away his goods, or disseise him of his lands this will not be a good authority to justify him that doth it.' Authority (In contracts) the lawful delegation ....
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..... 12) The meaning of the word 'authority' given in Webster's Third New International Dictionary, which can be applicable is 'a public administrative agency or corporation having quasi-governmental power and authorized to administer a revenue-producing public enterprise. This dictionary meaning of the word 'authority' is clearly wide enough to include all bodies created by a statute on which powers are conferred to carry out governmental or quasigovernmental functions, Rajasthan State Electricity Board v. Mohan Lal, AIR 1967 SC 1857 (1863): (1967) 3 SCR 377. (Constitution of India, Art. 12)" In view of the aforesaid this Court fully adopts the interpretation given by the Co-ordinate Bench of "other authority" to exclude arbitration. In Kingfisher Airlines Ltd. (supra) the issue was whether an industrial dispute or a dispute relating to enforcement of a right or an obligation created under the Industrial Disputes Act is arbitrable, that is, capable of being adjudicated by a private forum of an arbitrator. Considering the scheme of the Industrial Disputes Act and having regard to the fact that the said Act itself contemplates conciliation and other modes of dispu....
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....e procedure for making a reference is to make an application, in the prescribed form to the appropriate Government. The reference could be of an existing industrial dispute or of the one which is apprehended. Section 13 casts duty upon the conciliation officer to hold conciliation proceedings in case of the industrial dispute that exists or is apprehended. The duty is mandatory where the dispute relates to a public utility service. He is required to try to promote a settlement between the parties. If he succeeds in his attempt, he sends a report to the appropriate government alongwith memorandum of settlement signed by the parties to the dispute. In case of failure in promoting settlement, he submits a failure report setting forth the steps taken by him for ascertaining the facts and circumstances relating to the dispute and for bringing about the settlement. The report is also required to state the reasons on account of which, in his opinion, a settlement could not be arrived at. On receipt of the failure report from the conciliation officer, the appropriate government, if satisfied, makes a reference either to a Board or to the Labour Court or to the Industrial Tribunal or ....
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.... shall proceed, which includes mandatory forwarding of the arbitration to the appropriate government and the Conciliation Officer. It also includes, publication of notification thereafter so that the employers and workmen not parties to the arbitration agreement, but are concerned in the dispute, get an opportunity of presenting their case before the arbitrator. The Section does not entirely leave the matter in the hands of the parties to the arbitration agreement and the private fora of their choice. This shows that an industrial dispute is not treated solely as an individual dispute, but is always approached from the context of the larger picture of the industry as a whole. The status of the arbitrator appointed under Section 10A of the I.D. Act, is also different. To put it in the words of the learned Single Judge of this Court from Nagpur Bench in the unreported decision in Western Coalfield's case (supra), he falls "within the rainbow of statutory tribunals". The relevant observations from the decision read as follows : "The Act seeks to achieve social justice on the basis of collective bargaining. Collective bargaining is a technique by which dispute as to conditions of....
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....117. The Act, although, was enacted for a specific purpose but having regard to the exclusion of jurisdiction expressly provided for in Sections 17 and 18 of the Act, it is difficult to hold that a civil court's jurisdiction is completely ousted. Indisputably the banks and the financial institutions for the purpose of enforcement of their claim for a sum below Rs. 10 lakhs would have to file civil suits before the civil courts. It is only for the claims of the banks and the financial institutions above the aforementioned sum that they have to approach the Debt Recovery Tribunal. It is also without any cavil that the banks and the financial institutions, keeping in view the provisions of Sections 17 and 18 of the Act, are necessarily required to file their claim petitions before the Tribunal. The converse is not true. Debtors can file their claims of set off or counter-claims only when a claim application is filed and not otherwise. Even in a given situation the banks and/or the financial institutions can ask the Tribunal to pass an appropriate order for getting the claims of set-off or the counter claims, determined by a civil court. The Tribunal is not a high powered tri....
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....Bank (supra) the Hon'ble Division Bench considered Sections 31, 17, 18 19(6) to (11) of the RDB Act, 1993 and held that it would be evident from Sections 17 and 18 of the RDB Act that civil courts jurisdiction is barred only in regard to the application filed by a bank or a financial institution for recovery of its debts. The jurisdiction of civil courts is not barred in regard to any suit filed by a borrower or any other person against a bank for any other relief. 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. Sections 19(6) to (11) (as introduced by Act 1 of 2000), are merely enabling provisions. Significantly, Sections 17 and 18 have not been amended. Jurisdiction has not been conferred on the Tribunal, even after amendment, to try independent suits or proceedings initiated by borrowers or others against banks/financial institutions, nor the jurisdiction of civil courts barred in regard to such suits or proceedings. The only change that had been made was to enable the defendants to claim set-off or make a counterclaim a....