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TMI Blog2012 (10) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... ed:- 15-4-2011 - R V Raveendran And J M Panchal JJ. R.V.RAVEENDRAN, J. 1. The scope of section 8 of the Arbitration and Conciliation Act, 1996 (Act, for short) arises for consideration in this appeal by special leave. 2. Capstone Investment Co. Pvt. Ltd. (second respondent herein, for short "Capstone") and Real Value Appliances Pvt. Ltd. (respondent No.3 herein, for short "RV Appliances") are the owners of flat No.9A and 9B respectively situated at "Brighton", Napien Sea Road, Mumbai. Capstone and RV Appliances had borrowed loans from SBI Home Finance Ltd., (the first respondent herein, for short "SBI") under two loan agreements dated 3.12.1994 by securing the said two flats in favour of SBI. 3. Under two leave and licence agreements dated 5.4.1996, Capstone and RV Appliances permitted the appellant to use their respective flats, for the term 1.9.1996 to 31.8.1999. Each licence agreement was signed, in addition to the licensor and licensee, by the other flat owner (that is RV Appliances in respect of agreement relating to 9A and Capstone in respect of agreement relating to 9B) and SBI as confirming parties 1 and 2. 4. On the same day (5.4.1996) a tripartite deposit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Part to Party of the Third Part, the Parties of the Third Part shall not enforce the mortgage and will permit the Party of the Second Part, its employee or officer to occupy the said Flats." Clause (3) of the Deposit agreement gave an option to the appellant who opted to continue the licence in respect of the two flats for a further period of two years beyond 31.8.1999, by paying an additional deposit of Rs.2 crores (at the rate of Rs.1 crore for each flat). Clause (11) enabled the appellant to continue to use and occupy the flats so long as the amounts paid by it as security deposit remained unpaid. Clause (8) gave the option to the appellant to pay the amount due to the SBI on behalf of the borrowers to safeguard its interest. Relevant portion of para 8 is extracted below: "If any default is made by the Parties of the First Part in paying any sum(s) due from time to time by them to the Parties of the Third Part under the loan facility, the Party of the Second Part shall, to safeguard its interest in retaining the right to use and occupy the said Flats, have an option to pay the Parties of the Third Part the sum(s) so becoming due and remaining unpaid by the Parties of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded. 7. As the loan amount due by RV Appliances was not repaid, SBI filed a mortgage suit (Suit No.6397/1999) in the High Court of Bombay on 28.10.1999 against Capstone (first defendant), appellant (second defendant), and RV Appliances (defendant No.3) in regard to the mortgaged property (flat No.9A) for the following reliefs: (a) for a declaration that the 1st defendant as mortgagor was due in a sum of Rs.8,46,10,731/- with further interest on the principal sum at the rate of Rs.16.5% per annum and additional interest for delayed payment at the rate of 2% per month from 1st September, 1999 till payment or realization; (b) for a declaration that the amount and interest mentioned in prayer (a) above is secured in favour of the plaintiffs by a valid and subsisting mortgage of flat No.9A and three garages (suit premises); (c) for a direction to the first defendant to pay to the plaintiff the amount and interest in prayer (a) by such date as may be fixed by the Court for redemption of the mortgage and in the event of the first defendant failing to make payment by that date, the suit premises be sold by and under the orders and directions of the Court in enforcement and realizat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, it was not open to the appellant to request the court to refer the parties to arbitration. (b) The detailed counter affidavit dated 15.12.1999 filed by the appellant, in regard to the notice of motion for temporary injunction, amounted to submission of the first statement on the substance of the dispute, before filing the application under section 8 of the Act and therefore the appellant lost the right to seek reference to arbitration. (c) The suit was filed on 28.10.1999. The appellant filed the counter affidavit opposing the application for temporary injunction on 15.12.1999. The application under section 8 of the Act was filed on 10.10.2001 nearly 20 months thereafter, during which period the appellant had subjected itself to the jurisdiction of the High Court. In view of the inordinate delay, the appellant was not entitled to the relief under section 8 of the Act. The said order is challenged in this appeal by special leave. This court while granting leave on 28.8.2002 stayed the further proceedings in the suit. 11. The appellant contends that the parties to the suit were all parties to the deposit agreement containing the arbitration agreement. The claim of the SBI w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t? iii. Whether the application under section 8 was liable to be rejected as it was filed nearly 20 months after entering appearance in the suit? iv. Whether the subject matter of the suit is `arbitrable', that is capable of being adjudicated by a private forum (arbitral tribunal); and whether the High Court ought to have referred the parties to the suit to arbitration under section 8 of the Act? Re : Question No. (i) 14. In this case, there is no dispute that all the parties to the suit are parties to an agreement which contains the provision for settlement of disputes by arbitration. Clause (16) which provides for arbitration provides for settlement of the following disputes by arbitration : (a) disputes with respect to creation of charge over the shares and flats; (b) disputes with respect to enforcement of the charge over the shares and flats and realization of sale proceeds therefrom; (c) application of the sale proceeds towards discharge of liability of Capstone and RV Appliances to the appellant; and (d) disputes relating to exercise of right of the appellant to continue to occupy the flats until the entire dues as stated in clauses 9 and 10 of the deposit ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion/attachment before judgment/appointment of Receiver, cannot be considered as submission of a statement on the substance of the dispute, as that is done to avoid an interim order being made against him. In Rashtriya Ispat Nigam Ltd vs. Verma Transport Company - 2006 (7) SCC 275, this Court held that the expression 'first statement on the substance of the dispute' contained in Section 8(1) of the Act is different from the expression 'written statement', and refers to a submission of the party making the application under section 8 of the Act, to the jurisdiction of the judicial authority; and what should be decided by the court is whether the party seeking reference to arbitration has waived his right to invoke the arbitration clause. This Court then proceeded to consider whether contesting an application for temporary injunction by filing a counter, would amount to subjecting oneself to the jurisdiction of the court. This Court observed : "By opposing the prayer for interim injunction, the restriction contained in Sub-section (1) of Section 8 was not attracted. Disclosure of a defence for the purpose of opposing a prayer for injunction would not necessarily mean that subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... junction, the defendants have to contest the application. Such contest may even lead to appeals and revisions where there may be even stay of further proceedings in the suit. If supplemental proceedings like applications for temporary injunction on appointment of Receiver, have been pending for a considerable time and a defendant has been contesting such supplemental proceedings, it cannot be said that the defendant has lost the right to seek reference to arbitration. At the relevant 16 time, the unamended Rule 1 of Order VIII of the Code was governing the filing of written statements and the said rule did not prescribe any time limit for filing written statement. In such a situation, mere passage of time between the date of entering appearance and date of filing the application under section 8 of the Act, can not lead to an inference that a defendant subjected himself to the jurisdiction of the court for adjudication of the main dispute. The facts in this case show that the plaintiff in the suit had filed an application for temporary injunction and appointment of Receiver and that was pending for some time. Thereafter, talks were in progress for arriving at a settlement out of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 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. 22. Arbitral tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... status or condition of property which operates directly on the property itself. (Vide : Black's Law Dictionary). Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to sub-ordinate rights in personam arising from rights in rem have always been considered to be arbitrable. 24. The Act does not specifically exclude any category of disputes as being not arbitrable. Sections 34(2)(b) and 48(2) of the Act however make it clear that an arbitral award will be set aside if the court finds that "the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force." 25. Russell on Arbitration [22nd Edition] observed thus [page 28, para 2.007] : "Not all matter are capable of being referred to arbitration. As a matter of English law certain matters are reserved for the court alone and if a tribunal purports to deal with them the resulting award will be unenforce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee decisions of this Court. 26.1. In Haryana Telecom Limited vs. Sterlite Industries India Ltd - 1999 (5) SCC 688, this Court held : "Sub-section (1) of Section 8 provides that the judicial authority before whom an action is brought in a matter, will refer the parties to arbitration the said matter in accordance with the arbitration agreement. This, however, postulates, in our opinion, that what can be referred to the arbitrator is only that dispute or matter which the arbitrator is competent or empowered to decide. The claim in a petition for winding up is not for money. The petition filed under the Companies Act would be to the effect, in a matter like this that the company has become commercially insolvent and, therefore, should be wound up. The power to order winding up of a company is contained under the Companies Act and is conferred on the court. An arbitrator, notwithstanding any agreement between the parties, would have no jurisdiction to order winding up of a company. The matter which is pending before the High Court in which the application was filed by the petition herein was relating to winding up of the Company. That could obviously not be referred to arbitration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incidental thereto may be referred to arbitration : "Reference is made there to certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, which cannot be referred to arbitration. It has, however, been held that if in respect of facts relating to a criminal matter, (say) physical injury, if there is a right to damages for personal injury, then such a dispute can be referred to arbitration (Keir v. Leeman) (1846) 9 Q.B, 371. Similarly, it has been held that a husband and wife may, refer to arbitration the terms on which they shall separate, because they can make a valid agreement between themselves on that matter ...... ...." 26.3. In Chiranjilal Shrilal Goenka vs. Jasjit Singh and Ors.- 1993 (2) SCC 507 this court held that grant of probate is a judgment in rem and is conclusive and binding not only the parties but also the entire world; and therefore, courts alone will have exclusive jurisdiction to grant probate and an arbitral tribunal will not have jurisdiction even if consented concluded to by the parties to adjudicate upon the proof or validity of the will. 27. An agreement to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an application for being impleaded in a mortgage suit, and is entitled to be made a party. But if a mortgage suit is referred to arbitration, a person who is not a party to the arbitration agreement, but having an interest in the mortgaged property or right of redemption, can not get himself impleaded as a party to the arbitration proceedings, nor get his claim dealt with in the arbitration proceedings relating to a dispute between the parties to the arbitration, thereby defeating the scheme relating to mortgages in the Transfer of Property Act and the Code. It will also lead to multiplicity of proceedings with likelihood of divergent results. (ii) In passing a preliminary decree and final decree, the court adjudicates, adjusts and safeguards the interests not only of the mortgagor and mortgagee but also puisne/mesne mortgagees, persons entitled to equity of redemption, persons having an interest in the mortgaged property, auction purchasers, persons in possession. An arbitral tribunal will not be able to do so. The court can direct that an account be taken of what is due to the mortgagee and declare the amounts due and direct that if the mortgagor pays into court, the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement). Therefore, a suit for sale, foreclosure or redemption of a mortgaged property, should only be tried by a public forum, and not by an arbitral tribunal. Consequently, it follows that the court where the mortgage suit is pending, should not refer the parties to arbitration. 29. The appellant contended that the suit ultimately raises the following core issues, which can be decided by a private forum: (i) Whether there is a valid mortgage or charge in favour of SBI? (ii) What is the amount due to SBI? and (iii) Whether SBI could seek eviction of appellant from the flat, even if it is entitled to enforce the mortgage/charge? It was submitted that merely because mortgage suits involve passing of preliminary decrees and final decrees, they do not get excluded from arbitrable disputes. It is pointed out that the arbitral tribunals can also make interim awards deciding certain aspects of the disputes finally which can be equated to preliminary decrees granted by courts, and the final award made by the arbitrator, after detailed accounting etc. could be compared to the final decree by courts. It is therefore contended that there is no impediment for the parties to mort ..... X X X X Extracts X X X X X X X X Extracts X X X X
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