2003 (4) TMI 427 - HC - Companies Law

Summary

Issues Involved:
1. Existence and validity of the arbitration agreement.
2. Scope and applicability of Section 9 of the Arbitration and Conciliation Act, 1996.
3. Right of the financier to repossess and sell leased equipment.
4. Impact of BIFR proceedings on the financier's right to repossess leased property.

Issue-wise Detailed Analysis:

1. Existence and Validity of the Arbitration Agreement:
The Applicant-Company entered into a lease agreement with the Respondent-Company on 8-9-1993, which was assigned to M/s. TVS Lakshmi Credit Limited on 30-7-1998. The Respondent agreed that the original agreement would remain valid in the hands of the assignee. The Applicant referred to Clause 31 of the lease agreement, which mandates arbitration for resolving disputes. The Respondent admitted the existence of an arbitration clause but contested the appointment of a sole arbitrator. The court confirmed the presence of a valid arbitration agreement as per Section 7 of the Arbitration and Conciliation Act, 1996.

2. Scope and Applicability of Section 9 of the Arbitration and Conciliation Act, 1996:
The court examined the scope of Section 9, which allows parties to seek interim measures before or during arbitral proceedings, or before the enforcement of an arbitral award. The court referenced the Supreme Court's decision in Sundaram Finance Ltd. v. NEPC India Ltd., which clarified that a manifest intention to arbitrate is sufficient to invoke Section 9, even if formal arbitration proceedings have not commenced. The court emphasized that Section 9 aims to support arbitration by preserving assets, maintaining the status quo, and protecting evidence.

3. Right of the Financier to Repossess and Sell Leased Equipment:
The court discussed the nature of hire purchase agreements, where the financier retains ownership of the equipment until the final installment is paid. The financier also has the right to seize the equipment in case of default. The court cited previous judgments, including Official Liquidator v. Commissioner of Police and Shri Ananta Udyog (P.) Ltd. v. Cholamandalam Investment, to support the financier's right to repossess and sell the equipment. The court concluded that the financier's application under Section 9 to appoint a Commissioner for repossessing and selling the equipment is maintainable, as it aims to secure the amount in dispute in the arbitration proceedings.

4. Impact of BIFR Proceedings on the Financier's Right to Repossess Leased Property:
The Respondent was declared a sick company by the BIFR. The court referenced the Division Bench's decision in Shri Ananta Udyog (P.) Ltd. v. Cholamandalam Investment, which held that the property leased by the financier does not fall within the scope of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, as it is not the property of the lessee. Therefore, the BIFR proceedings do not impact the financier's right to repossess and sell the equipment.

Conclusion:
The court rejected the Respondent's objection regarding the dispute over the appointment of an arbitrator. It held that Section 9 can be invoked even without referring the dispute to the arbitrator, provided there is a manifest intention to arbitrate. The application for appointing an Advocate Commissioner to repossess and sell the equipment was deemed maintainable. The Commissioner was directed to proceed with the work and file a report within twenty days.