TaxTMI 
TaxTMI 
2016 (8) TMI 1434
X X X X Extracts X X X X
X X X X Extracts X X X X
....uted under the RDB Act. Mr. Abhrajit Mitra, 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 D....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n in unequivocally participating in proceeding before 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion for the observation therein that Section 34 of the SARFAESI Act, 2002 demolishes at least two principles that were regarded as 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 Petit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ator by reason of the 1996 Act, is conferred with various powers and it partakes the character of a judicial authority and having regard to the fact that it is a selfcontained Code 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 Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....espondents submit that where the jurisdiction of civil courts, both in respect of pending and future claims, has been taken away by the said Act of 1993 and the power to adjudicate the claims has been 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 an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bank claim covered by the 1993 Act already pending in respect of the transaction. Now, if a constituent could bypass the jurisdiction of a civil court to receive its complaint in respect of a transaction with a bank 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 cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f a Tribunal under this Act, being a suit or proceeding the cause of action where on it is based is such that it would have been, if it had arisen after such establishment, within the jurisdiction of such Tribunal, shall stand transferred on that date 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... mainly agreed to choose a forum of adjudication. A fairly recent decision of the Delhi High Court in HDFC Bank Ltd. (supra) is of some relevance. The Larger Bench presided over by the then Acting Chief Justice before His Lordship's elevation to the Hon'ble Supreme Court considered 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reement between or among the parties, and would leave the issue of arbitrability for the decision of the arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under Section 34 of the Act, relying upon Sub-Section 2(b)(i) 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pon arbitration as the forum for settlement of such disputes. 36. The well recognized examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (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 determi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on- arbitrable. Examples are Rent Control Tribunal under the Rent Control Act and Labour Court/Industrial Tribunal under the Industrial Disputes Act, 1947. Obviously, question that would immediately strike is as to what would be the yardstick to determine some kind of disputes to be decided by the tribunals are non-arbitrable whereas some other disputes become arbitrable. According to us, cases where a particular 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tration to bring it, as much as possible, in harmony with the UNCITRAL Model must be held only to be more so. Once it is held that the Arbitration Act is a self-contained code and exhaustive, then it must also be held, using the lucid expression of Tulzapurkar, J., that it carries with it "a negative import that only such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein 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 compl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng resolution of the dispute; and 3. Arbitration is regarded as substitute for the court litigation and results in the passing of a binding award. 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 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng precedent and the ratio of said decision is binding on this Court as well. The order of the Division Bench is not wiped out from existence. Moreover, judicial propriety and discipline demands that we should respect the judgment of the Co-ordinate Bench till it is set-aside by the Apex Court. The Hon'ble Supreme Court in Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association, Madras reported at AIR 1992 SC 1439 has made a distinction between an order of stay of operation 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....peal) Rules, 1968. In that context, the Hon'ble Supreme Court in Paragraphs 32 to 37 referred to the various meaning of the word "authority" and thereafter in Paragraph 38 held that the authority should be understood on its plain language and without necessarily curtailing its scope. It would be more appropriate to understand this expression and give it a meaning which should be in conformity with the context and purpose in which it has been used. The "other authority" appearing in Rule 9(2) is intended 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 perfor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1. an official decision of a court used esp. as a precedent. 2. (a) a power to act est. over others that derives from status, position,or office. Example: the authority of the President. (b) the power to act that is officially or formally granted (as by statute, corporate bylaw, or court order). 3. * * * 4 (a) a government agency or corporation that administers a revenueproducing public enterprise. Example: the transit authority. (b) a government agency or public office responsible for an area 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 princ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... accepted as the true and correct meaning. '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, Pradeep Kumar Biswas v. Indian Institute of Chemical Biology, (2002) 5 SCC 143." In Wharton's Law Lexicon, 15th Edition, the word "authority" is explained as under:- "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 quasi-governmental functions, Som Prakash Rekki v. Union of India, (1981) 1 SCC 449, AIR 1981 SC 212 (229). (Constitution of India Art. 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, Raj....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., but with restraints on laissez faire and concern for the welfare of the weaker lot." 15). The different authorities established for resolution of the disputes under the I.D. Act are,(i) Works Committee consisting of representatives of the employers and workmen engaged for the establishment in the establishment specified under Section 3, (ii) Conciliation Officers appointed by appropriate government (Section 4), (iii) Board of Conciliation appointed by the appropriate government (Section 5), (iv) Courts of enquiry constituted by the appropriate government (Section 6), (v) Labour Courts (Section 7) and (vi) Industrial Tribunals (Section 7A). Section 10 provides for reference of disputes to the Board, Courts and Tribunals. The 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the employee. Therefore, the types of the remedies that the arbitrator can award in the matters of industrial disputes is also required to be looked into, whether the remedies that can be awarded by him is limited by considerations of public policy and whether the remedies that can be awarded by him are same as the remedies that can be awarded by an Industrial Court. In case of an industrial dispute relating to dismissal or discharge of an employee, the arbitrator would be powerless in granting the relief of reinstatement, outside of I.D. Act. 18). The second distinctive feature, is the voluntary arbitration provided for under Section 10A of the I.D. Act. Section 10A provides, a detailed procedure on how the arbitration thereunder 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tiate proceeding before the Debt Recovery Tribunal. As long as no forum is created for enforcement of such right, a debtor is not precluded from filing the suit before the Civil Court. The jurisdiction of the Civil Court is plenary in nature. A Civil Court is entitled to decide the respective claims of the parties in a suit. Unless the same is ousted expressly by a statute or by necessary implication therefrom, civil courts will have jurisdiction to try all types of suits. In the said decision the Hon'ble Supreme Court has also considered the relevant paragraphs of Sections 17 and 18 of the RDB Act to the implication of said provisions of the jurisdiction of civil courts in Paragraphs 117, 118, 136 and 137 of the said report which reads:- "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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a civil court to a tribunal, he would loose some rights including the right to prefer an appeal before a higher court in terms of Sections 96 and 100 of the Code of Civil Procedure. Mr. Diwan, however, has strongly placed reliance upon Union of India and Another v. Delhi High Court Bar Association and Others [(2002) 4 SCC 275] wherein it was observed that the tribunals have become an essential part of the judicial system in the country. Such observations were made keeping in view the provisions of Articles 323A and 323B of the Constitution of India. The logical extension of the said observations would not lead to a conclusion that the tribunals are either civil courts or this Court would be entitled to exercise its inherent power for transfer of a civil suit to a tribunal." In Indian 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 s....