2012 (10) TMI 459 - SC - Companies Law

Suit for mortgaged property Applicability of scope of section 8 of the Arbitration and Conciliation Act Held that - There is no impediment for the parties to mortgage suits being referred to arbitration under section 8 of the Act - mortgage suit is not only about determination of the existence of the mortgage or determination of the amount due. It is about enforcement of the mortgage with reference to an immovable property and adjudicating upon the rights and obligations of several classes of persons who have the right to participate in the proceedings relating to the enforcement of the mortgage, vis-a-vis the mortgagor and mortgagee. Even if some of the issues or questions in a mortgage suit are arbitrable or could be decided by a private forum, the issues in a mortgage suit cannot be divided - suit being one for enforcement of a mortgage by sale, it should be tried by the court and not by an arbitral tribunal - appeal is accordingly dismissed

Issues Involved:
1. Scope of Section 8 of the Arbitration and Conciliation Act, 1996.
2. Whether the subject matter of the suit fell within the scope of the arbitration agreement.
3. Whether the appellant had submitted the first statement on the substance of the dispute before filing the application under Section 8 of the Act.
4. Whether the application under Section 8 was liable to be rejected due to delay.
5. Whether the subject matter of the suit is arbitrable.

Detailed Analysis:

Scope of Section 8 of the Arbitration and Conciliation Act, 1996:
The primary issue in this appeal concerns the scope of Section 8 of the Arbitration and Conciliation Act, 1996. This section mandates that a judicial authority must refer parties to arbitration if the subject matter of the dispute is covered by an arbitration agreement, provided the application for arbitration is made before submitting the first statement on the substance of the dispute.

Whether the Subject Matter of the Suit Fell Within the Scope of the Arbitration Agreement:
Clause 16 of the deposit agreement provided for arbitration of disputes related to the creation and enforcement of charges over shares and flats, realization of sale proceeds, and the appellant's right to occupy the flats until dues are realized. The suit filed by SBI sought to enforce the mortgage and recover amounts due, including delivery of possession. The court held that these matters fell within the scope of the arbitration agreement.

Whether the Appellant Had Submitted the First Statement on the Substance of the Dispute Before Filing the Application Under Section 8 of the Act:
The appellant filed a detailed affidavit opposing an interim injunction on 15.12.1999, and later filed the application under Section 8 on 12.10.2001. The High Court considered the affidavit as the first statement on the substance of the dispute. However, the Supreme Court clarified that a reply to an interim relief application does not constitute submission on the substance of the dispute, as it is aimed at avoiding an interim order.

Whether the Application Under Section 8 Was Liable to Be Rejected Due to Delay:
Section 8 does not specify a time limit but requires the application to be made before the first statement on the substance of the dispute. The court emphasized that mere passage of time does not indicate submission to the court's jurisdiction. The appellant's conduct, including pending supplemental proceedings and settlement talks, did not amount to waiving the right to arbitration.

Whether the Subject Matter of the Suit is Arbitrable:
The court examined whether the nature of the dispute could be resolved by arbitration. It distinguished between rights in personam (arbitrable) and rights in rem (non-arbitrable). Mortgage suits involve rights in rem and require adjudication by public fora due to the involvement of third parties and the need for preliminary and final decrees. The court concluded that mortgage suits should be tried by courts, not arbitral tribunals.

Conclusion:
The Supreme Court upheld the dismissal of the application under Section 8 of the Act, emphasizing that the suit for enforcement of a mortgage by sale should be tried by the court. The appeal was dismissed, and the court clarified that no opinion on the merits of the claims and disputes in the suit was expressed.

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