2018 (1) TMI 1746 - HC - Indian Laws

Applicability of Arbitration agreement - Disputes between family members over a property secured for credit facilities - It is the appellant s case that the excess proceeds from the sale of the Mandeville Gardens property, which has been secured in favour of the bank, is to be distributed among the brothers and a large portion thereof is to come to the appellant - HELD THAT - It is true that the bank may have no role to play in the arbitral reference, but it would not enure to the benefit of any party or the bank if the property is not sold or the bank does not appropriate the proceeds to the extent of its claim. It is possible that certain interlocutory orders take the character of a final order and certain aspects of the suit are resolved even before the trial is commenced or any decree passed. Merely because the bank is not a party to the arbitration agreement should not deter the Court in finding a solution for the parties, subject to the non-party to the arbitration agreement having no reservation in participating in the proceedings. The bank in the present case does not see any prejudice in the asset being directed to be sold and the bank retaining the sale proceeds with the right to appropriate the quantum of its claim, from out of such proceeds, subject to any negotiation that the bank may enter into with the debtors. As far as the balance sale proceeds are concerned, the bank does not find any prejudice in the same being made over to a special officer, which part of the order would fall within the domain of the arbitration agreement and the bank may have no connection therewith. Applications are disposed of by setting aside the order impugned dated November 16, 2017 and by directing the bank to take immediate steps for the sale of the Mandeville Gardens property by publishing advertisements as the bank would in the usual course in terms of the rules under the said Act of 2002.

Summary

Issues:
Disputes between family members over a property secured for credit facilities, applicability of arbitration agreement, bank's role in proceedings under Section 9 of the Arbitration and Conciliation Act, 1996, sale of property and distribution of proceeds, retention of sale proceeds by the bank, appointment of special officers, handling of balance sale proceeds, creation of fixed deposits, resolution of disputes through arbitral reference or possible suit.

Analysis:
The judgment addresses disputes within the Agarwal family regarding a property secured for credit facilities from the United Bank of India. The appellant, one of the sons, claims the property's value exceeds the bank's claim. The disputes seem to fall under an arbitration agreement, with the appellant seeking distribution of excess proceeds among family members. The appellant initiated proceedings under Section 9 of the Arbitration and Conciliation Act, 1996, leading to an order for the property's sale and retention of proceeds by the bank pending an arbitral reference.

However, a subsequent order vacated the previous one, stating the bank cannot be a party to Section 9 proceedings as it's not part of the arbitration agreement. Despite the bank's non-involvement in arbitration, the Court emphasizes the need for a solution to ensure the property is sold and proceeds appropriated correctly. The bank shows willingness to sell the property and retain proceeds to cover its claim, with the excess to be managed by special officers, aligning with the arbitration agreement's provisions.

The judgment directs the bank to proceed with the sale of the property, inviting offers and confirming the sale to the highest bidder who fulfills payment obligations promptly. The bank is instructed to retain a specific amount to cover its claim, expenses, and interest, transferring the balance to special officers. These officers will manage the proceeds based on the arbitral reference's outcome or any subsequent suit filed by the appellant within a specified timeframe.

The judgment clarifies that other aspects of the disputes remain unresolved, leaving room for parties to pursue remedies through arbitration or potential legal action. No costs are awarded, emphasizing the need for a swift resolution regarding the property and distribution of proceeds. The judgment's detailed instructions aim to ensure a fair and efficient process for all involved parties, balancing the bank's interests with the family's claims and the arbitration agreement's requirements.