2012 (9) TMI 1143 - HC - Indian Laws

Validity of orders passed by the Debt Recovery Appellate Tribunal (DRAT) - Arbitration Act and Recovery of Debts due to Banks and Financial Institutions Act 1993 (RDB Act) is to prevail over the other - Term arbitrability relating to the jurisdiction of the arbitral tribunal - Whether the provisions of the Arbitration and Conciliation Act 1996 (Arbitration Act) are excluded in respect of proceedings initiated by banks and financial institutions under the RDB Act - HELD THAT - In the case of Booz Allen and Hamilton Inc. 2012 (10) TMI 459 - SUPREME COURT . The Supreme Court in that case dealt with the issue of arbitrability of disputes and held that all disputes relating to right in personam are considered to be amenable to arbitration and disputes relating to right in rem are those disputes which are not arbitrable and require to be adjudicated by courts and public tribunals being unsuited for private arbitration. The term arbitrability has different meanings in different contexts. The three facets of arbitrability relating to the jurisdiction of the arbitral tribunal; (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 fora (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 statement of claim and the counter claim filed before the arbitral tribunal. A dispute even if it is capable of being decided by arbitration and falling within the scope of arbitration agreement will not be arbitrable if it is not enumerated in the joint list of disputes referred to arbitration or in the absence of such joint list of disputes does not form part of the disputes raised in the pleadings before the arbitral tribunal. Merely because there were huge NPAs and lot of monies belonging to the banks and financial institutions was stuck up and the legislature in its wisdom decided to create a special forum to have expeditious disposal of these cases would not mean that decisions rendered by Debt Recovery Tribunal come in the realm of right in rem . So far as tribunal like 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 to the Debt Recovery Tribunal except that the procedure for deciding the disputes is little different from that of CPC applicable to civil courts. Otherwise the Debt Recovery Tribunal is supposed to apply the same law as applied by the civil courts in deciding the dispute coming before it and is enforcing contractual rights of the Banks. It is therefore only a shift of forum from civil court to the tribunal for speedy disposal. Therefore applying the principle contained in Booz Allen and Hamilton Inc. (supra) we are of the view that the matters which come within the scope and jurisdiction of Debt Recovery Tribunal are arbitrable. Once that conclusion is arrived at obviously the parties are given a choice to chose their own private forum in the form of arbitration. Another significant fact which has to be highlighted is that the bank entered into agreement with the respondent herein on its own standard form formats. The terms and conditions of the loan were set out and decided by the bank. The respondent signed on dotted lines. In this scenario when it was the proposal of the bank to have an arbitration clause to which the respondent had agreed bank cannot now be permitted to say that this arbitration clause is of no consequence. Accepting the contention of bank would mean that the arbitration clause is rendered nugatory. It defeats the very effect of the said arbitration clause which was foisted by the bank itself upon the respondent though in law it becomes mutually acceptable between the parties. The Court cannot permit a situation where such an arbitration agreement becomes one sided agreement namely to be invoked by the bank alone at its discretion without giving any corresponding right to the respondent to have the benefit thereof. Therefore we find that orders of authorities below are without blemish. Finding no merit in this writ petition the same is dismissed. However since nobody had appeared on behalf of the respondent we are not imposing any costs.

Summary

Issues Involved:
1. Prevalence of Arbitration and Conciliation Act, 1996 vs. Recovery of Debts due to Banks and Financial Institutions Act, 1993
2. Jurisdiction of Debt Recovery Tribunal (DRT) and Debt Recovery Appellate Tribunal (DRAT)
3. Arbitrability of disputes under the RDB Act
4. Application of non-obstante clauses in conflicting statutes
5. Party autonomy in choosing arbitration over tribunal adjudication

Issue-wise Detailed Analysis:

1. Prevalence of Arbitration and Conciliation Act, 1996 vs. Recovery of Debts due to Banks and Financial Institutions Act, 1993
The core issue was whether the Arbitration and Conciliation Act, 1996 ("Arbitration Act") is excluded in respect of proceedings initiated by banks and financial institutions under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 ("RDB Act"). The Division Bench framed this legal question, noting that the DRT and DRAT had dismissed the bank's application for recovery, favoring arbitration as per the loan agreement.

2. Jurisdiction of Debt Recovery Tribunal (DRT) and Debt Recovery Appellate Tribunal (DRAT)
The DRT had dismissed the bank's OA for recovery, citing that the arbitration agreement between the parties took precedence. The DRAT upheld this decision, leading to the bank's writ petition. The court analyzed whether the DRT's exclusive jurisdiction under the RDB Act ousted the arbitration process. It concluded that the DRT's jurisdiction was not exclusive to the extent of barring arbitration agreements voluntarily entered into by the parties.

3. Arbitrability of disputes under the RDB Act
The court examined whether disputes under the RDB Act were arbitrable. It referred to the Supreme Court's judgment in Booz Allen and Hamilton Inc. v. SBI Home Finance Limited, which distinguished between arbitrable disputes (rights in personam) and non-arbitrable disputes (rights in rem). The court concluded that claims for recovery of debts are rights in personam and thus arbitrable. The creation of the DRT was seen as a replacement of civil courts for expeditious disposal but did not preclude arbitration.

4. Application of non-obstante clauses in conflicting statutes
The court considered Section 34 of the RDB Act, which includes a non-obstante clause, and Section 5 of the Arbitration Act, which limits judicial intervention. It concluded that the non-obstante clause in the RDB Act did not imply the exclusion of arbitration, as arbitration agreements are a recognized alternative to judicial adjudication.

5. Party autonomy in choosing arbitration over tribunal adjudication
The court emphasized the importance of party autonomy in choosing arbitration as an alternative dispute resolution mechanism. It noted that the bank had itself included an arbitration clause in the loan agreement, which the respondent had agreed to. Therefore, the bank could not now argue against the arbitration process. The court held that allowing the bank to disregard the arbitration clause would render it nugatory and one-sided.

Conclusion:
The court dismissed the bank's writ petition, upholding the decisions of the DRT and DRAT. It affirmed that parties could choose arbitration over tribunal adjudication for debt recovery disputes, maintaining the validity of the arbitration agreement. The judgment reinforced the principle of party autonomy and the arbitrability of disputes under the RDB Act.