Shri Chand Construction & Apartments Private Ltd & Anr v. Tata Capital Housing Finance Ltd (2020) - Power of court to appoint arbitrator

DATE OF JUDGEMENT: 04th March, 2020

JUDGES: Hon’ble Mr. Justice Rajiv Sahai Endlaw

PARTIES

• Shri Chand Construction & Apartments Private Ltd & Anr (Plaintiff)
• Tata Capital Housing Finance Ltd (Respondent)

SUBJECT: The counsel for the plaintiffs, notwithstanding the notice issued of the application on 28th August, 2019 and opportunity for filing reply having been given, has not filed the reply. The plaintiffs have sued the defendants for recovery of damages for loss by the defendants of the title deeds of the immovable property of the plaintiff deposited with the defendants by way of equitable mortgage. The suit came up first before this Court on 1st April, 2019, when subject to the reservations expressed in the order, the suit was entertained and summons thereof ordered to be issued. Whether the application under Section 8 was liable to be rejected as it was filed nearly 20 months after entering appearance in the suit

AN OVERVIEW

(i) The suit came up first before this Court on 1st April, 2019, when subject to the reservations expressed in the order, the suit was entertained and summons thereof ordered to be issued. The defendant appeared before the Joint Registrar on 20th May, 2019 and stated that complete set of documents and three pages of the plaint had not been received. It was further stated that there is an arbitration clause in the agreement between the parties and an application for referring the parties to arbitration would be filed. The Joint Registrar adjourned the proceedings to 1st August, 2019, granting time of four weeks to the defendant to file written statement and application if any.

(ii) On 1st August, 2019 also, there was no written statement of the defendant on record; the defendant complained that deficient copies as directed to be supplied had not been supplied by the plaintiffs till then. Per contra, the counsel for the plaintiffs contended that since the counsel who had appeared for the defendant on 20th May, 2019 had neither got his appearance recorded nor filed vakalatnama, the plaintiffs did not know to whom to supply the complete paper book.

(iii) The suit came up before this Court on 21st August, 2019, by when also written statement of the defendant was not on record. For the reasons stated in the order dated 21st August, 2019, the right of the defendant to file written statement was closed and the plaintiffs directed to file affidavits by way of examination-in-chief and the suit posted before the Joint Registrar on 15th October, 2019 for recording of evidence of the plaintiffs.

(iv) The defendant preferred FAO(OS) No.179/2019 to the Division Bench against the order closing its right to file written statement and the Division Bench vide order dated 27th September, 2019 has set aside the order closing the right of the defendant to file written statement and granted time till 11th October, 2019 to the defendant to file written statement. Notice thereof was ordered to be issued, pleadings therein directed to be completed and the application posted for hearing for today.

IMPORTANT PROVISIONS

The Arbitration Act, 1940

• Section 8- power of Court to appoint arbitrator or umpire.

(1) In any of the following cases,-

(a) where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen, concur in the appointment or appointments; or

(b) if any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy; or

(c) where the parties or the arbitrators are required to appoint an umpire and do not appoint him; any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy.

(2) If the appointment is not made within fifteen clear days after the service of the said notice, the Court may, on the application of the party who gave the notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case may be, who shall have like power to act in the reference and to make an award as if he or they had been appointed by consent of all parties

ISSUES

The counsel for the defendant has contended that there is an arbitration clause in the agreement between the parties, copy of which has been filed by the plaintiffs themselves and copy of which has also been filed by the defendant along with the application and in accordance therewith, the parties are to be referred to arbitration.

The counsel for the plaintiffs has opposed the application contending that the defendant, by its conduct aforesaid has dis-entitled itself from applying under section 8 of the Arbitration Act. It is contended that the defendant, by filing an appeal to the Division Bench against the order dated 21st August, 2019 closing its right to file written statement, has opted to proceed with the suit by filing a written statement and cannot now be heard to claim arbitration.

ANALYSIS OF THE JUDGEMENT

1. The facts 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.
2. In contrary, the counsel for the defendant has referred to Sharad P. Jagtiani v. Edelweiss Securities Ltd. 208 (2014) DLT 487, that since the Division Bench has extended the time for filing written statement, the right of the defendant to, in the written statement also, in preliminary objection take a plea of section 8 of the Arbitration Act is preserved and the defendant cannot be debarred from invoking arbitration.
3. Both counsels have also referred to paragraphs 7,9 and 10 of the order dated 27th September, 2019 of the Division Bench which states, (7) Although no such application had been filed till then, it now transpires that the application under section 8 of the Arbitration and Conciliation Act, 1996 has subsequently been filed by the Appellant/Defendant on 20th August 2019, one day before the matter was taken up by the learned Single Judge. This explains why the learned Single Judge did not find the said application on record since it was yet to be numbered. The Court is now informed that the said application has since been listed before the learned Single Judge and is now coming up from 1st October, 2019. (9). In the circumstances the Court is of the view that the limitation period of 90 days could not be said to have begun on 26th April, 2019 since on that day admittedly a complete copy of the plaint was not served on the Defendant. Consequently, the question of the striking off the defence of the Defendant and subjecting him to cost of Rs. 1,00,000/- for accepting the written statement, as has been directed in the impugned order, did not arise. The Court accordingly sets aside the impugned order dated 21st August, 2019 of the learned Single Judge in so far as it strikes off the defence of the Defendant and directs that the written statement would be taken on record only subject to payment of Rs. 1,00,000/- as costs. (10). Learned counsel for the Appellant/Defendant states that after the impugned order of the learned Single Judge he applied for and obtained a certified copy of the plaint on 4th September, 2019. He undertakes to file the written statement positively on or before 11th October, 2019, with an advance copy to the learned counsel for the Plaintiff. It is made clear that no further time beyond 11th October 2019 would be granted to the Appellant/Defendant for this purpose. The written statement if filed by the above date will be taken on record.
4. The contention of the counsel for the plaintiffs, that the Act of the defendant filing the appeal shows an intention to file the written statement rather than having the application under section 8 of the Arbitration Act decided, shows an election by the defendant to proceed with the suit and to give up the arbitration, is also not found to be correct. The defendant could not have taken a chance, of not impugning the order closing its right to file written statement, in the hope of having the application under section 8 of the Arbitration Act allowed and availing of legal remedies, in any case, cannot be a test to be applied vis-a-vis section 8 of the Arbitration Act as aforesaid, in view of the legislative change in the Act. Thus it was decided by the Court that, no merit in the opposition by the plaintiffs to the application under section 8 of the Arbitration Act was found.
5. Once the Division Bench has extended the time for filing written statement, it has to be held that the time for filing application under section 8 of the Arbitration Act also stands extended and in the Court’s opinion aforesaid stands.
6. Consequently, the Court enquired if the defendant comes under the purview of Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) or the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (DRT Act)? To this the counsel for the defendant states that the defendant comes under the purview of the SARFAESI Act. He however states that it was not so on the date of entering into the agreement containing the arbitration clause but is a subsequent development. Later, he states that SARFAESI Act provisions became available to the defendant prior to the agreement dated 29th March, 2017.
7. The High Court made another inquiry regarding whether the defendant has come under the purview of the SARFAESI Act, whether not the second part of the clause aforesaid in the agreement would apply, ceasing the effect of the arbitration clause? The counsel for the defendant states that the arbitration clause will cease to have effect only as far as the claim of the defendant against the plaintiffs is concerned but will continue to have effect as far as the claims of the plaintiffs against the defendant are concerned.
8. Whether there can be a valid arbitration clause providing for arbitration of claims of one of the party and providing for the remedy of the Court or any other fora for claims of the other party, the counsel for the defendant is unable to cite any law

CONCLUSION

Section 7 of the Arbitration Act defines an 'arbitration agreement' as meaning an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. In my view, the words "all or certain disputes" permit classification of disputes but do not permit classification of claims. The said words, in my view, do not allow a provision providing for claims of one of the parties arising in respect of a defined legal relationship to be adjudicated by arbitration but the claim of the other party arising in respect of the same legal relationship to be adjudicated by any other mode. The same would be contrary to the public policy prohibiting splitting up of claims and causes of action as enshrined in the provisions of the CPC and would result in multiplicity of proceedings, with claims of one of the parties to a legal relationship being decided by one forum and the claims of the other party to the same legal relationship being decided by another forum and possibility of conflicting findings. Such cannot be the interpretation of the words "all or certain disputes". The said words have to be interpreted as permitting the parties to specify the disputes of a particular nature/class to be submitted to arbitration, whether the said dispute arises from the claim of one or the other party.

Conclusively, applying the dicta of the Supreme Court and citing some judgments of other High Courts, Delhi High Court held that there was no arbitration agreement.

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