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TMI Blog2013 (12) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... ge, 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 suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in order to secure the facility being granted by the Plaintiff No.1 to the Defendant No.1. 4. Pursuant to the said Loan agreement, Defendant No. 2 on the same day i.e. on 20th January, 2012, inter alia executed a personal guarantee agreement by which Defendant No. 2 irrevocably and unconditionally guaranteed to the Plaintiff No. 1 the full and prompt payment of the Defendant No. 1's indebtedness including, but not limited to the loan amount under the Loan Agreement. The terms of the Agreement are as set out in the said Personal Guarantee Agreement. Though Clause 15 of the Loan Agreement provided that the disputes between the parties concerning or connected with the interpretation or implementation of the Loan Agreement or arising out of the Loan Agreement would be referred to arbitration, the Personal Guarantee Agreement executed by and between the Plaintiff No.1 and Defendant No.2 did not contain any such arbitration agreement. 5. Thereafter, by an Agreement dated 30th January, 2012, called Master Agreement for Projects ( the Services Agreement ), the Plaintiff No.2 agreed to provide certain services to Defendant No. 1 for the consideration and on the terms and conditions s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cit in the amounts recovered on sale of the said assets, a personal decree be passed against the Defendants for repayment of such deficit to the Plaintiffs; 8. As set out hereinabove, the Defendants have taken out the above Chamber Summons under Section 8 of the Arbitration and Conciliation Act, 1996, to refer the parties to the Suit to arbitration as contemplated under the Loan Agreement between the Plaintiff and Defendant No.1. 9. The Plaintiffs have submitted that the above Suit cannot be referred to Arbitration since the subject matter of the Suit is not arbitrable, and also the subject matter of the Suit and the parties cannot be bifurcated or split. Relying on the decision of the Hon'ble Apex Court in Booz Allen and Hamilton Inc. vs. SBI Home finance Ltd. and others (2011) 5 SCC 532 the Plaintiffs have submitted that since by the present Suit the Plaintiffs are seeking specific performance and enforcement of the mortgage, and enforcement of a mortgage being an enforcement of a right in rem, the same will have to be decided by this Court and not by an Arbitral Tribunal. The Plaintiffs have pointed out that Defendant No. 2 has also executed a Personal Guarantee Agreement w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efendant No.1 that the above Chamber Summons be allowed. 11. I have considered the submissions advanced on behalf of the parties and also the case law relied upon by them. The Plaintiffs and Defendant No.1 executed a Convertible Loan Agreement and Master Agreement for Projects (the Services Agreement) wherein there are arbitration clauses at Clause 15 and paragraph 26 respectively. It is an admitted position that there is no mortgage created as of today. The Plaintiffs have, as reproduced hereinabove, sought reliefs in terms of prayer clauses (c) to (g) of the Plaint for specific performance of the Agreement to mortgage and for enforcement of the mortgage when so created by and under a decree of this Court. This is based on clause 2.2. 1 (vi) of the Convertible Loan Agreement whereby Defendant No. 1 has expressly agreed to create a mortgage in favour of the Plaintiffs. 12. Section 14 (3) (a) (i) of the Specific Relief Act states that the court may enforce specific performance where the suit is for enforcement of a contract to execute a mortgage or furnish any other security for securing repayment of loan which the borrower is not willing to repay at once, provided that where on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreements do not specify the mortgaged assets and hence it be interpreted as a floating charge. The Plaintiffs have correctly submitted that the said decision of the Madras High Court does not lend any assistance to the Defendants because the same is irrelevant to the subject matter of the present case. The judgment is under the Stamp Act wherein the question arose whether the Trust Deed created a floating charge and whether the same can be stamped as a mortgaged deed. In the instant case, no mortgage has yet been created but the suit is for creation of a mortgage and thereafter its enforcement. The Defendant No.1 has under the Loan Agreement [clause 2.1 (vi) (a)] agreed to mortgage all present and future movable and immovable properties of Defendant No. 1 including all plant, machinery, furniture, fittings, equipment, book debts, stocks, computer hardware and software and IP rights therein in favour of Plaintiff No.1. As submitted by the Plaintiffs, the identification of the mortgaged properties will be done at the trial stage by leading evidence. 15. Again, Defendant No.2 has also executed a Personal Guarantee Agreement wherein he has guaranteed repayment of the guaranteed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it follows that bifurcation of the subject matter of an action brought before a judicial authority is not allowed. 19. Secondly, such bifurcation of suit in two parts, one to be decided by the arbitral tribunal and other to be decided by the Civil Court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forums. The Plaintiffs are therefore correct in their submission that in the present case neither the subject matter nor the parties can be split. There is no scope for referring the question of enforcement of the mortgage to Arbitration, in view of the Supreme Court judgment in Booz Allen (supra). The question of referring the suit to Arbitration against Defendant No. 2 cannot arise as there is no arbitration agreement with Defendant No. 2. Hence, on either count a reference to Arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 cannot be directed. 20. In view therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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