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2013 (12) TMI 32 - HC - Companies LawReferral to be made to Arbitrator u/s 8 of Arbitration and Conciliation Act, 1996 - Failure to make payments under the agreement Failure to execute the personal guarantee Held that - The Plaintiff is correct in contending that once the specific performance is ordered in their favour, the Court in the very same suit can grant enforcement of the mortgage - The suit is a composite suit including for enforcement of the mortgage - Those composite reliefs together form the subject matter of the suit - the relief for enforcement of the mortgage is not arbitrable as such relief affect the rights of third parties who are not parties to the Arbitration Agreement. Relying upon Booz Allen and Hamilton Inc. Versus SBI Home Finance Ltd. & Others 2012 (10) TMI 459 - SUPREME COURT - mere Agreement to sell or an Agreement to mortgage does not involve any transfer of right in rem but creates only a personal obligation - if only 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 - 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 the courts of law and not by the Arbitral Tribunal the Suit filed by the Plaintiffs seeking both specific performance and enforcement of the mortgage, being a right in rem, will have to be decided by this Court and not by an Arbitral Tribunal - the subject matter being enforcement of the mortgage is not arbitrable and Reference under Section 8 of the Arbitration Act cannot be directed. Part referral to Arbitration u/s 8 of Arbitration and Conciliation Act, 1996 Held that - It would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action that is to say the subject matter of the suit or in some cases bifurcation of the suit between the parties who are parties to the arbitration agreement and others are possible - This would be laying down a totally new procedure not contemplated under the Act - If bifurcation of the subject matter of a suit was contemplated, the legislature would have used appropriate language to permit such course - there is no such indication in the language Thus, bifurcation of the subject matter of an action brought before a judicial authority is not allowed Decided in favour of Plaintiff.
Issues Involved:
1. Whether the dispute should be referred to arbitration as per the Arbitration Agreement between the Plaintiff and Defendant No.1. 2. Whether the subject matter of the suit is arbitrable. 3. Whether the suit can be bifurcated between arbitrable and non-arbitrable issues. 4. Whether Defendant No.2, who is not a party to the Arbitration Agreement, can be referred to arbitration. Issue-wise Detailed Analysis: 1. Whether the dispute should be referred to arbitration as per the Arbitration Agreement between the Plaintiff and Defendant No.1: The Defendant No.1 sought to refer the parties to arbitration under the Arbitration Agreement in the Loan Agreement. The Plaintiffs argued that the suit involves specific performance and enforcement of a mortgage, which are rights in rem and not arbitrable. The court noted that the Loan Agreement and Services Agreement contain arbitration clauses, but the Personal Guarantee Agreement does not. The court concluded that the suit involves specific performance and enforcement of a mortgage, which are not arbitrable and must be decided by the court. 2. Whether the subject matter of the suit is arbitrable: The Plaintiffs contended that the subject matter of the suit, which includes specific performance and enforcement of a mortgage, is not arbitrable. They relied on the Supreme Court decision in Booz Allen and Hamilton Inc. vs. SBI Home Finance Ltd., which held that enforcement of a mortgage is a right in rem and not arbitrable. The court agreed, stating that a mortgage suit for sale of mortgaged property is an action in rem and must be decided by the courts of law. Therefore, the subject matter of the suit is not arbitrable. 3. Whether the suit can be bifurcated between arbitrable and non-arbitrable issues: The Plaintiffs argued that the suit cannot be bifurcated between arbitrable and non-arbitrable issues, citing the Supreme Court decision in Sukanya Holdings Pvt. Ltd. vs. Jayesh H. Pandya. The court noted that the suit involves composite reliefs, including enforcement of a mortgage, which is not arbitrable. The court held that bifurcation of the suit would lead to delays, increased costs, and potential conflicting judgments. Therefore, the suit cannot be bifurcated, and the entire matter must be decided by the court. 4. Whether Defendant No.2, who is not a party to the Arbitration Agreement, can be referred to arbitration: The Plaintiffs pointed out that Defendant No.2, who executed the Personal Guarantee Agreement, is not a party to the Arbitration Agreement. The court noted that the Personal Guarantee Agreement does not contain an arbitration clause, and Defendant No.2 is not a party to the Loan Agreement or Services Agreement. Therefore, there is no basis for referring the suit against Defendant No.2 to arbitration. Conclusion: The court concluded that the suit involves specific performance and enforcement of a mortgage, which are not arbitrable and must be decided by the court. The suit cannot be bifurcated between arbitrable and non-arbitrable issues. Defendant No.2, who is not a party to the Arbitration Agreement, cannot be referred to arbitration. Therefore, the Chamber Summons to refer the parties to arbitration was dismissed.
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