1 IN THE HIGH COURT AT CALCUTTA CIVIL APPELALTE JURISDICTION Original Side A.P.O. No. 38 of 2010 A.P.O.T. No. 3 of 2010 A.P. No. 634 of 2008 Bhagwandas Auto Finance Ltd. & Ors. Vs. H.D.F.C. Bank Ltd. With A.P.O. No. 39 of 2010 A.P.O.T. No. 4 of 2010 A.P. No. 633 of 2008 Bhagwandas Auto Finance Ltd. & Ors. Vs. H.D.F.C. Bank Ltd. With A.P.O. No. 40 of 2010 A.P.O.T. No. 5 of 2010 A.P. No. 635 of 2008 Bhagwandas Auto Finance Ltd. & Ors. Vs. H.D.F.C. Bank Ltd. BEFORE: The Hon'ble Mr. Justice PINAKI CHANDRA GHOSE A N D The Hon'ble Mr. Justice ASIM KUAMR RAY For Appellant : Mr. Debangshu Basak, Adv. Mr. Swatarup Banerjee, Adv. Mr. Tirthankar Das, Adv. For Respondents : Mr. Pratap Chatterjee, Sr. Adv.2
Mr. Utpal Bose, Adv.
Mr. Samrat Sen, Adv.
Mr. Mainak Bose, Adv.
Mr. P. Sinha, Adv.
Mr. S. Pandey, Adv.
Heard on : 13.07.10, 19.07.10, 21.07.10 & 22.07.10 Judgment on : 21.01.2011
PINAKI CHANDRA GHOSE, J. : This appeal is directed against an order dated 17th December, 2009 disposing of these three applications filed before the Hon'ble First Court under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the said Act). The said applications were filed by the respondent H.D.F.C. Bank.
The facts of the case briefly are as follows:
The three petitions which were filed before the Hon'ble First Court involved identical questions. From the facts it reveals that the bank under three several agreements financed the respondent on several vehicles and equipments. The said three agreements contained arbitration Clause 30 which is set out hereunder:
"Clause 30. All disputes, differences and/or claim arising out of or touching upon this Agreement whether during its subsistence or thereafter shall be settled by arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any statutory 3 amendments thereof and shall be referred to the sole Arbitrator of an Arbitrator nominated by the Bank. The award given by such an Arbitrator shall be final and binding on the Borrower and Guarantor to this agreement".
The disputes and differences having been arisen in respect of the subject matter of the three agreements, the petitioner has invoked the arbitration agreement in each case and has brought the present proceedings under Section 9 of the said Act.
The three petitions were filed by the H.D.F.C. Bank under Section 9 of the Arbitration and Conciliation Act, 1996 inter alia on an allegation that the agreement for loan cum hypothecation agreement was entered into between the Bank and the appellant herein in terms of the said agreement. In terms of the said agreement the Bank sanctioned and disbursed the loan in respect of three agreements which was required to be paid by the respondent along with interest. The loan amount was utilised by the appellant/respondent and subsequently it appears that the appellant deliberately failed and neglected to pay the outstanding dues or any part thereof. Hence, the Bank pleaded that they have suffered substantial loss and in these circumstances the applications filed under Section 9 inter alia for appointment of Receiver, injunction and other ancillary reliefs.4
The appellant resisted the said applications however, on 17th December, 2009 the Hon'ble Single Judge was pleased to hold that there is no effective defence put forward on behalf of the appellant and thereby allowed the petition appointing Receiver over the vehicles and directed to take possession of the vehicles being the subject matter of the agreements covered by the three petitions.
The Court held as follows :
"There will be an order directing the receiver appointed by the order dated February 18, 2009 to take possession of the vehicles being the subject matter of the agreements covered by the three petitions. Till such time that the receiver takes possession of the vehicles, the respondents will remain restrained from dealing with or disposing of or alienating or encumbering or parting with possession of any of the vehicles or parts thereof in favour of any other person. The receiver will be paid a remuneration of 300 GM in each petition by the petitioner, subject to the petitioner being entitled to claim such amount in the relevant reference. The receiver will keep the vehicles at a place to be provided by the petitioner, but the petitioner will not be entitled to use of the vehicles without the previous leave of the arbitral tribunal. The petitioner may apply before the arbitral tribunal for sale of the vehicles, if necessary."
Being aggrieved, this appeal has been filed.5
The appellant had resisted the Section 9 of the proceedings, inter alia on the following grounds:
1) This Hon'ble Court has no jurisdiction to try, entertain and determine the Section 9 proceedings inasmuch as :
A) Respondent being a bank within the meaning of the RDB Act, of 1993 and having a claim in excess of Rs.10,00,000/- against the appellant, the Debts Recovery Tribunal (DRT) established the RDB of 1993 had exclusive jurisdiction.
B) The agreement claimed to have been entered into between the parties at pages 23 to 29 contains a forum selection clause which ousts the jurisdiction of this Hon'ble Court.
The subject matter of the instant three appeals to the arbitral proceedings initiated by HDFC Bank Ltd. (hereinafter referred to as the Bank) in connection with its claims under three several Loan Agreements. The said references are pending before Anil Kumar Sen, former Chief Justice of this High Court. The claims of the Bank pending before the learned Arbitrator under the three agreements are as follows :
Date of Agreement Bank's Claim before the Arbitral Tribunal 29.12.2006 1,79,65,027/- 29.12.2006 1,28,70,804/- 25.09.2006 58,76,130/- 6
The appellant contended that the jurisdiction of all Courts, including this Court to receive a petition under Section 9 of the Arbitration and Conciliation Act, 1996 would arise where the claim is in excess of Rs.10,00,000/- is barred under Section 17, 18 and 34 of the RDB Act, 1993. The respondent cannot refer the claim which is in excess of Rs.10,00,000/- to Arbitration in view of the provisions of Sections 17,18 and 34 of the RDB Act. Sections 17, 18 and 34 of the RDB Act of 1993 are as follows :
"Section 17 :
Jurisdiction, powers and authority of Tribunals : 1) A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions.
2) An appellate Tribunal shall exercise, on and from the appointed day the jurisdiction, powers and authority to entertain appeals against any order made, or deemed to have been made, by Tribunal under this Act.
Bar of jurisdiction :- On and from the appointed day, no Court or other authority shall have, or be entitled to exercise any jurisdiction, powers and authority (except the Supreme Court, and a High Court exercising jurisdiction under Articles 226 and 227 of the Constitution) in relation to the matters specified in Section 17. Section 34 :7
Act to over-riding effect : 1) Save as provided under the sub Section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other time being in force or in any instrument having effect by virtue of any law other than this Act.
2) The provisions of this Act or the rules made thereunder shall be in addition to, and no in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984), the Sick Industrial Companies Act (special provisions) Act, 1985 (1 of 1986) and the Small Industries Development Bank of India Act, 1989 (39 of 1989)."
Mr. Debangshu Basak, learned Advocate appearing on behalf of the appellant relied upon the following decisions :
1. 1997 (7) SCC 539 - T. Deen Dayal Vs High Court of A.P.;
2. 1999 (7) SCC 69 - Dandu Lakshmi Reddy Vs State of A.P.;
3. 2000(4) SCC 406 -Allahabad Bank Vs Canara Bank & Anr.;
4. 2000(4) SCC 275 -Wellington Associates Ltd. Vs Kirit Mehta;
5. 2002 (6) SCC 389 -M/s Hira Lal & Sons & Ors. Vs M/s Lakshimi Commercial Bank.
Relying on the above mentioned decisions, Mr. Basak, learned Advocate contended that the Hon'ble Supreme Court in those decisions have held that the 8 DRT established under the RDB Act of 1993 has exclusive jurisdiction to decide any claim of debt under the provisions of RDB Act of 1993. The Hon'ble First Court came to the conclusion that the respondent's first contention is that the subject matter of the petitioner's claim is not arbitrable is rejected. The respondents have made some murmurs as to the jurisdiction of the Court to incidentally deal with a matter of the present kind despite the clear bar under Section 18 of the 1993 Act. In proceedings under Section 9 of the Arbitration and Conciliation Act, the Court acts as a surrogate where the real authority is with the arbitral tribunal. Under Section 9 of the 1996 Act, the Court does not finally adjudicate upon any matter capable of being assessed by the arbitral tribunal; it merely provides for an interim arrangement. If it is possible for a claim which can otherwise be carried to a Debts Recovery Tribunal to be made by a bank or a financial institution to an arbitral tribunal, the power conferred under Section 9 is incidental to it and if the bar under Section 18 of the 1993 Act does not operate against an arbitral tribunal, such bar does not pass through to a Court exercising authority under Section 9 of the 1996 Act. The expression "no court or other authority" can be dismissed. An action can either be before a Court or before any other authority. An action directly before a Court in relation to matters specified in Section 17 of the 1993 Act cannot be received. But if an arbitral tribunal is not covered by the expression "other authority", a jurisdiction as a Court within the meaning of the expression "no court or other authority" but it would derive its power from the arbitration agreement which appears to fall outside the scope of the bar under Section 18.9
The petitioner contended before the learned Trial Court on the basis of a Clause contained in the said agreement and pleaded that on the basis of the said Forum Selection Clause this Court has no jurisdiction to entertain the application. The Court after scrutinizing the said Clause and the submissions made by the parties came to the conclusion that apart from the fact that the Forum Selection Clause cited is vague and incapable of being enforced in the manner sought by the respondents, the respondents' conduct would disentitle them from furthering such plea.
The jurisdiction of this Court has been invoked on the basis of a statement at paragraph 12 that the notice of termination was issued by the petitioner from within jurisdiction and on the strength of the averments at paragraph 43 of the petition. Paragraph 43 of the petition reads as follows :
"43. The amount lent and advanced was disbursed from the Salt Lake Branch of the petitioner bank. However, the agreement between the parties was executed and concluded at the office of the petitioner at 8, Netaji Subhas Road, Kolkata - 700 001, within the aforesaid jurisdiction. The said agreement was to be performed and part payments have been made by the respondent at the aforesaid office of your petitioner within the aforesaid jurisdiction. The respondent failed to perform the agreement or comply with the requisitions of the said notice from within the jurisdiction. The subject matter of reference is for an amount in excess of Rs.10,00,000/- and as such this Hon'ble High Court has and the City Civil Court at Calcutta dose not have jurisdiction to 10 receive, try and determine this petition. This Hon'ble Court has jurisdiction to decide the question forming the subject matter of arbitration as if the same had been the subject matter of the suit."
The respondents have denied the material averments at paragraph 43 of the petition, they have not denied that the agreement was rescinded and the demand to pay up was made by a notice issued from within jurisdiction. It is also of some significance that 8, Netaji Subhas Road address of the petitioner herein has been indicated in the cause title to the petitions brought by the respondents before the Alipore Court. That would imply the respondents' understanding that such office of the petitioner had some nexus with the transaction. This may have a bearing in the ultimate analysis here and His Lordship on the basis of the averments made in the petitions held that this Court had the jurisdiction to receive the same. His Lordship further held that since the parties report that the respondents have taken steps to apply under Section 16 of the 1996 Act before the arbitral tribunal, nothing in this order should be deemed to prejudice the respondents' contention in those applications and His Lordship was pleased to allow the said petitions which were filed before the Court.
Our attention has been drawn to Sections 17, 18 and 34 of the 1993 Act. Our attention has also been drawn under Section 2(g) of the RDB Act 1993 where a debt is defined and 2(d) and 2(e) where bank and banking company are defined. Section 2(3) of the Arbitration and Conciliation Act, 1996, Section 9 and Section 37 of the Arbitration & Conciliation Act 1996 and it is submitted that 11 arbitrator is an authority within the meaning of RDB Act of 1993. He further relied on the decision reported in 2008(7) SCC 487 (State of Madhya Pradesh & Anr. Vs. Anshuman Shukla) in support of his such contention.
On the question of the Forum Selection Clause our attention was drawn to Clause 37 which reads as follows:
"Clause 37. Appealable orders. - 1) An appeal shall lie from the following orders (and from no others) to the Court authorized by law to hear appeals from original decrees of the Court passing order, namely :-
a) granting or refusing to grant any measure under Section 9;
b) setting aside or refusing to set aside an arbitral award under Section 34.
2) Appeal shall lie to a Court from an order of the arbitral tribunal-
a) accepting the plea referred to in sub Section (2) or sub Section (3) of Section 16; or
b) granting or refusing to grant an interim measure under Section
3) No second appeal shall lie from an order passed in appeal under this Section, but nothing in this Section shall affect or take away any right to appeal to the Supreme Court".
Our attention has also been drawn to the meaning of 'lending office' which has been defined in the said agreement. It is contended before us that Clause 27 of the agreement uses the expression 'exclusive' and 'alone'. Therefore, this Forum Selection Clause in the agreement has to be given effect and therefore, 12 this Court has no jurisdiction to receive or to try the said applications. In support of his contention he further relied upon the following three decisions:
i) 1971 (1) SCC 286 (Hakam Singh Vs. M/s. Gammon (India) Ltd.);
ii) 1989 (2) SCC 189 (A.B.C. Laminart Pvt. Ltd. Vs. Andhra Pradesh Agencies);
iii) 2009 (4) Raj 560 (Balaji Coke Industry Pvt. Ltd. Vs. M/s. Maa Bhagwati Coke (Guj) Pvt. Ltd.);
He further contended that where there is a conflict of two contentions the special law will prevail.
On the contrary, Mr. Pratap Chatterjee, learned Senior Advocate appearing on behalf of the respondent submitted that the act came into operation for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. The only purpose is expedition and to avoid the tardy progress of suits in Civil Courts. He drew our attention to AIR 2002 SC 1469 and (2002) 4 SCC 277. The Hon'ble Supreme Court relied upon the said view and held that compare to the Special Court the Trial of offences relating to transactions in securities Act, 1992 the DRT Act is of comparatively general in nature. The arbitration Act is a 'special' legislation and a later central legislation. The arbitration Act came into effect 13 from 1996 Act to lay down the special purpose for which the said statute was enacted that is to establish on unified legal framework for domestic arbitration.
He further submitted that the DRT Act and the arbitration Act being both Central Acts, the later would prevail in the event of any repugnancy. He further contended that the appellant has relied on the non-obstante clause contained in Section 34(1) of the DRT Act. As Non-obstante clause, it is submitted that it would not operate against future enactments. He relied upon the decision reported in AIR 2002 SC 2273 (State of W.B. & Ors. Vs. Madan Mohan Ghosh & Ors.). Moreover, Section 34(1) of the DRT Act provides that the provisions of the DRT Act would have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Thus Section 34(1) of the DRT Act would not have the result of enabling the DRT Act to have overriding effect over the Arbitration Act which was enacted in 1996.
He further submitted that the bar of jurisdiction envisaged in Section 18 of the DRT Act is only with regard to a Court or other authority. In other words, it is only a Court or an authority which is prohibited from exercising jurisdiction in respect of the matters specified in Section 17 of the DRT Act.
He further submitted that an arbitral Tribunal is not a Court is no longer res integra. He relied upon the decision reported in (2006) 13 SCC 322 (Union Carbide India Ltd. Vs. Union of India). He further submitted that the decisions by such authorities would be subjected to judicial review under Articles 226 and 14 227 of the Constitution i.e. the supervisory jurisdiction of the High Courts under Article 227 and the writ jurisdiction of the High Court under Article 226.
He contended that an arbitral Tribunal is an authority. The decisions/orders of the arbitral Tribunal would be subject to judicial review under the writ jurisdiction and the supervisory jurisdiction of the High Courts under Articles 226 and 227 respectively of the Constitution. In the Constitution Bench judgment of SBP & Co. Vs. Patel Engineering Ltd. reported in (2005) 8 SCC 618 where the Hon'ble Supreme Court has disapproved and deprecated the earlier practice of High Courts in entertaining applications under Articles 226 and/or 227 of the Constitution in relation to directions/decisions given by the arbitral Tribunals. The basis of the stand adopted by the Hon'ble Supreme Court is the acceptance of the fact that the Arbitral Tribunal is merely after all a creature of a contract between the parties. Even if the same is constituted by the Chief Justice that would not alter the status of the arbitral Tribunal. It will still be a forum chosen by the parties by agreement.
He further contended that it is well established that the benefit conferred by its statute can be waived and/or given up by agreement and the consideration or object of such agreement would not be illegal under Section 23 of the Contract Act. There is no legal impediment or bar created by statute in enabling the beneficiary waiving or giving up or abandoning the advantage or benefit conferred by a particular legislation. No policy, much less a public policy, is involved and 15 such benefit or advantage can always be waived. In support of his contention he relied upon the decision reported in AIR (1971) SC 2213 (Lachoo Mal Vs. Radhye Shyam).
He further contended that the Debts Recovery Tribunal constituted under the DRT Act would certainly be a 'Judicial Authority' as defined in Section 8 of the Arbitration Act. In such circumstances, even if the bank had mistakenly initiated proceedings before the DRT, it would have been open to the appellants to insist that the parties be referred to Arbitration and in such circumstances the Bank would have been unable to have its claim adjudicated by the DRT. The provisions of Section 8 of the Arbitration Act is mandatory in nature and confer no discretion whatsoever on the 'Judicial Authority' before which an action is brought in a matter which is subject to an arbitration agreement. The DRT would have no alternative but to refer the parties to arbitration. In support of his contention he relied upon the decision reported in 2002 1 SCC 203. He submitted that recently two other High Courts have also taken the view that banks are not barred from invoking the provisions of the Arbitration Act even where its claim against its constituent exceeds the sum of Rs.10,00,000/- and the bank is entitled to disregard the Forum set up by the DRT Act in the following decisions :
1. (2008) 2 Arb LR 39 (Kotak Mahindra Bank Ltd. Vs. Prem Power Construction Pvt. Ltd.);
2. AIR 2001 KAR 483 (Walter Rosario & Ors. Vs. Corporation Bank and Anr.) He further contended that there is no dispute with regard to the validity and enforceability of the arbitration agreement between the parties. The appellants have themselves initiated proceedings under Section 9 of the Arbitration Act before the District Court at Alipore. In initiating an application under Section 9 of the Arbitration Act it is implicit that there is a final and binding arbitration agreement in existence. It is also implicit that a dispute must have arisen which is referable to the Arbitral Tribunal. This principle has been laid down by the Hon'ble Supreme Court in (1999) 2 SCC 479 (Sundaram Finance Ltd. Vs. Nepc India Ltd.). In view of the aforesaid it can no longer be contended by the appellants that the arbitration agreement is, in any way, not valid or enforceable.
He further submitted that despite the enactment of the DRT Act, arbitral proceedings initiated by the bank are maintainable even if the claim against its constituent exceeds the sum of Rs.10,00,000/-. In fact the bank has no alternative, in view of the existence of the valid, binding and enforceable arbitration agreement, but to commence arbitral proceedings in terms of the arbitration agreement.17
He contended that termination of the loan agreement effected from 5, Kiran Shankar Roy Road, Kolkata - 700 001 within the said jurisdiction. The payments made by the appellants at the Netaji Subhas Road, Kolkata branch of the Bank. These cheques given by the appellants were drawn on UCO Bank, International Banking Branch, 4 & 4/1, Red Cross Place, Kolkata - 700 001, within the said jurisdiction. The dishonour of the cheques issued by the appellants towards payment of the loan installments at the International Banking Branch of the UCO Bank at 4 & 4/1, Red Cross Place, Kolkata - 700 001, within the said jurisdiction. From the aforesaid it is manifest that a substantial part of the cause of action has arisen within the local limits of the Ordinary Original Civil Jurisdiction of this Hon'ble Court.
Therefore, it is clear that the bar of jurisdiction was not intended to relate to arbitration proceedings. According to him the act gives a benefit to the bank to file a statutory Forum for expeditious adjudication of this claim.
He further submitted that the loan agreements contained a 'jurisdiction' clause. The jurisdiction clause is vague and uncertain. He further submitted that this clause emphasizes on 'the city'. By giving emphasis on the expression "in the city" where the lending office of the Bank is situated, the said jurisdiction clause is rendered vague and ambivalent as to which Court is intended to be fixed with jurisdiction.18
He further contended that the Netaji Subhas Road Branch of the Bank is within the Ordinary Original Civil Jurisdiction of this Court and further comes within the city at Calcutta.
According to him when a Forum Selection Clause or a jurisdiction clause is vague and uncertain, the said clause cannot be relied on and the same is treated as otiose and nugatory and he relied upon the decision reported in 2002 (3) CHN 138 (Mc. Nally Bharat Engineering Co. Ltd. Vs. Benoy Krishna Bose). Therefore, according to him the said clause cannot oust the jurisdiction of a competent Court.
In the instant case the appellants have filed proceedings in the Alipore Court and thereby abandoned their choice of forum and have demonstrated their disinclination to be bound by the Forum Selection Clause. As such the appellants are debarred, in law and in equity, from seeking to enforce the jurisdiction clause.
In support of his submission he relied upon the following decisions and contended that for the ends of justice, relieve the parties of the burden of the Clause:
1. AIR 1985 Ori 106 (The Paradeep Port Trust Vs. M/s. Hindusthan Mercantile Transport Corporation and Anr.);19
2. AIR 1978 Guj 46 (Isaqmahmad Habibiji Vs. The United India Fire and General Insurance Co. (Ltd.);
3. AIR 1980 Mad 28 (Renown Biscuit Co. Vs. Kamalanathan);
4. AIR 1987 Ori 30 (Indian Rrare Earths Ltd. & Ors. Vs. M/s. Unique Builders Ltd.);
5. AIR 1975 Guj 72 (M/s. Snehalkumar Sarabhai Vs. M/s. Economic Transport Organisation and Ors.);
6. AIR 1984 Ori 182 (M/s. Pattnaik Industries pvt. Ltd. Vs. Kalinga Iron Works and Anr.);
7. AIR 1988 Guj 73 (State of Rajasthan Vs. Gujarat State Construction Corporation Ltd.);
He further contended that a Forum Selection Clause can always be waived which has been held in a decision reported in 2001 (1) CHN 28 (GMB Ceramics Ltd. Vs. Neycer India Ltd.).20
In these circumstances, he submitted that the instant appeal should be dismissed.
In the case of State Bank of Bikaner & Jaipur Vs. M/s. Ballabh Das & Co. & Ors. reported in (1999) SCC 7 539 where the Hon'ble Supreme Court held as follows :
"The High Court should have appreciated that the bank has alleged in the suits plaints that the respondents had borrowed money from the goods exported under the bills referred to in the suits and that the amounts payable under the bills have not been paid by the foreign buyer to the bank under the agreement between the parties and therefore, they have remained outstanding. This is the cause of action disclosed in the plaints. Obviously, if this cause of action had arisen after the establishment of the Tribunal at Jaipur, then in that case the bank would have been required to file an application for recovery of the outstanding dues before the Tribunal and not in the Civil Court and the bar created under Section 18 would have also applied. As the suits were filed by the bank before establishment of the Tribunal and were pending in the Civil Court when the Tribunal came to be established under the Act, Section 31 became applicable to those suits and they shall have to be treated as transferred to the Tribunal on and from that date the Tribunal was established. Section 31 of the Act makes it clear that the transfer is automatic because of operation of law and, therefore, the bank was really not required to file applications. Those applications should have been really treated as applications for forwarding the records of the suits to the Tribunal. In our opinion, the trial Court rightly understood the correct position of law and passed correct orders on 21 those applications. The High Court took an erroneous view of the law and wrongly set aside the orders passed by the trial Court."
In the case of United Bank of India Vs. The Debts Recovery Tribunal & Ors. reported in (1999) 4 SCC 69 where the Hon'ble Apex Court held that there cannot be any dispute that the expression 'debt' has to be given the widest amplitude to mean any liability which is alleged as due from any person by a bank during the course of any business activity undertaken by the bank either in cash or otherwise, whether secured or unsecured, whether payable under a decree or order of any court or otherwise and legally recoverable on the date of the application. In ascertaining the question whether any particular tribunal created under the Act, it is imperative that the entire averments made by the plaintiff in the plaint have to be looked into and then find out whether notwithstanding the specially created tribunal having been constituted, the averments are such that it is possible to hold that the jurisdiction of such tribunal is ousted. With the aforesaid principle in mind on examining the averments made in the plaint, we have no hesitation to come to the conclusion that the claim in question made by the plaintiff is essentially one for recovery of a debt due to it. In this view of the matter the High Court was in error to hold that the dispute in question is not entertainable by the tribunal under Section 17 of the Act.
In the case of Allahabad Bank Vs. Canara Bank & Anr. reported in (2000) 4 SCC 406 where the Hon'ble Supreme Court held as follows : 22
"21. In our opinion, the jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applications for recovery of debts due to Banks or financial institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under Section 19 (22) (formerly under Section 19 (7)) to the Recovery Officer for recovery of the debt specified in the certificate. The question arises as to the meaning of the word 'recovery' in Section 17 of the Act. It appears to us that basically the Tribunal is to adjudicate the liability of the defendant and then it has to issue a certificate under Section 19 (22). Under Section 18, the jurisdiction of any other court or authority which would otherwise have had jurisdiction but for the provisions of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal. (This exclusion does not however apply to the jurisdiction of the Supreme Court or of a High Court exercising power under Articles 226 or 227 of the Constitution). This is the effect of Sections 17 and 18 of the Act.
22. We hold that the provisions of Sections 17 and 18 of the RDB Act are exclusive so far as the question of adjudication of the liability of the defendant to the appellant Bank is concerned.
(ii) execution of Certificate by Recovery Officer : Is his jurisdiction exclusive."
The Supreme Court considered the following points as treated in Para 13 of the said decision which is set out hereunder:-23
"Para 13. From the aforesaid contentions, the following points arise for consideration:
(1) Whether in respect of proceedings under the RDB Act at the state of adjudication for the money due to the Banks or financial institutions and at the stage of execution for recovery of monies under the RDB Act, the Tribunal and the Recovery Officers are conferred exclusive jurisdiction in their respective spheres?
(2) Where for initiation of various proceedings by the Banks and financial institutions under the RDB Act, leave of the Company Court is necessary under Sections 537 before a winding up order is passed against the Company or before provisional liquidator is appointed under Section 445 (1) and whether the Company Court can pass orders of stay of proceedings before the Tribunal, in exercise of powers under Section 422?
(3) Whether after a winding up order is passed under Section 446 (1) of the Company Act or a provisional liquidator is appointed, whether the Company Court can stay proceedings under the RDB Act, transfer them to itself and also decide questions of liability, execution and priority under Section 446(2) and (3) read with Sections 529, 529A and 530 etc. of the Companies Act or whether these questions are all within the exclusive jurisdiction of the Tribunal?
(4) Whether, in case it is decided that the distribution of monies is to be done only by the Tribunal, the provisions of Section 73 CPC and Sub-clause (1) and (2) of section 529, Section 530 of the Companies Court also apply - apart from Section 529A - to the proceedings before the Tribunal under the RDB Act?24
(5) Whether in view of provisions in Section 19 (2) and 19 (19) as introduced by Ordinance 1/2000, the Tribunal can permit the appellant Bank alone to appropriate the entire sale proceeds realized by the appellant except to the limited extent restricted by Section 529A? Can the secured creditors like the Canara Bank claim under Section 19(19) any part of the realizations made by the Recovery Officer and is there any difference between cases where the secured creditor opts to stand outside the winding up and where he goes before the Company Court?
(6) What is the relief to be granted on the facts of the case since the Recovery Officer has no sold some properties of the company and the monies are lying partly in the Tribunal or partly in this Court?"
The Supreme Court also defined the meaning of debt as provided in Section 2G of the Act and found that the meaning of 'debt' is nothing but any liability which is "claimed" as due from any person to a Bank o r financial institutions. It includes the liability and interest in cash or otherwise, whether secured or unsecured or whether payable under a decree or order of any Civil Court or otherwise and subsisting, and legally recoverable on, the date of the application filed to the Tribunal.
The Supreme Court deal with the said sections and observed as follows :-
"19. The initial question is as to the jurisdiction of the Tribunal under Sections 17 and 18 of the RDB Act in the matter passing the order of 25 adjudication and to what extent it is exclusive. The next question will be whether the jurisdiction of the Recovery Officer is also exclusive for purposes of execution of the adjudication order passed by the Tribunal.
(i) adjudication by Tribunal: Does the Tribunal have exclusive jurisdiction?
"Sections 17: Jurisdiction, powers and authority of Tribunals - (1) A Tribunal shall exercise, on and form the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions.
(2) An Appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made, on deemed to have been made, by a Tribunal under this Act.
Section 18: Bar of Jurisdiction. - On and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under Article 226 and 227 of the Constitution) in relation to the matters specified in Section 17.
It is clear from Section 17 of the Act that the Tribunal is to decide the applications of the Banks and Financial Institutions for recovery of debts due to them. We have already referred to the definition of 'debt' in Section 2 (g) as amended by Ordinance 1/2000. It includes "claims" by Banks and 26 financial institutions and includes the liability incurred and also liability under a decree or otherwise. In this context Section 31 of the Act is also relevant. That section deals with transfer of pending suits or proceedings to the Tribunal. In our view, the word 'proceedings' in Section 31 includes an 'execution proceedings' pending before a Civil Court before the commencement of the Act. The suits and proceedings so pending on the date of the Act stand transferred to the Tribunal and have to be disposed of "in the same manner" as applications under Section 19.
21. In our opinion, the jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applications for recovery of debts due to Banks or financial institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under Section 19 (22) (formerly under Section 19 (7)) to the Recovery Officer for recovery of the debt specified in the certificate. The question arises as to the meaning of the word 'recovery' in Section 17 of the Act. It appears to us that basically the Tribunal is to adjudicate the liability of the defendant and then it has to issue a certificate under Section 19 (22). Under Section 18, the jurisdiction of any other court or authority which would otherwise have had jurisdiction but for the provisions of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal. (This exclusion does not however apply to the jurisdiction of the Supreme Court or of a High Court exercising power under Articles 226 or 227 of the Constitution). This is the effect of Sections 17 and 18 of the Act."
"23. Even in regard to 'execution', the jurisdiction of the Recovery Officer is exclusive. Now a procedure has been laid down in the Act for recovery of the debt as per the certificate issued by the Tribunal and this procedure is contained in Chapter V of the Act and is covered by Sections 25 to 30. It is not the intendment of the Act that while the basic liability of the defendant is to be decided by the Tribunal under Section 17, the 27 Banks/Financial institutions should go to the Civil Court or the Company Court or some other authority outside the Act for the actual realization of the amount. The certificate granted under Section 19 (22) has, in our opinion, to be executed only by the Recovery Officer. No dual jurisdictions at different stages are contemplated. Further, section 34 of the Act gives overriding effect to the provisions of the RDB Act. That section reads as follows:
Section 34(1): Act to have over-riding effect.-
(1) Save as otherwise provided in sub-section (2), the provisions of this Act shall effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.
(2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984) and the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)."
"The provisions of Section 34(1) clearly state that the RDB Act overrides other laws to the extent of 'inconsistency'. In our opinion, the prescription of an exclusive Tribunal both for adjudication and execution is a procedure clearly inconsistent with realization of these debts in any other manner."
The Hon'ble Supreme Court also held as follows:-
"24A.Thus, the adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the exclusive jurisdiction of the Tribunal and the Recovery Officer and no other Court or 28 authority much less the Civil Court or the Company Court can go into the said questions relating to the liability and the recovery except as provided in the Act. Point 1 is decided accordingly."
In the case of Union of India Vs Delhi High Court Bar Association reported in (2002) 4 SCC 275 where the Hon'ble Supreme Court held that normally all disputes between the parties of a civil nature would be adjudicated upon by the civil courts. There is no absolute right in any one to demand that this dispute is to be adjudicated upon only by a Civil Court. The Supreme Court observed that by reason of the provisions of the Code of Civil Procedure, the civil courts had the right, prior to the enactment of the Debt Recovery Act, to decide the suits for recovery, filed by the banks and financial institutions. This forum, namely, that of a civil court, now stands replaced by a banking tribunal in respect of the debts due to the bank. The Hon'ble Apex Court also held that the transfer of pending cases from civil courts to the tribunal under Section 31 of the said Act cannot be said to be bad in law. Once a debt recovery tribunal has been established and the jurisdiction of courts barred by Section 18 of the Act. It would be only logical that any matter pending in the Civil Court should transfer to the Tribunal. The Hon'ble Apex Court also held that the exclusive jurisdiction is vested in the banking tribunal; it is only in that form that the bank cases can be tried and that is the reason for providing such provision in the said Act, being Section 31. In the said decision the Hon'ble Supreme Court also after examining the entire scheme of the Act upheld the Constitutional Validity of the same. 29
In the case of M/s Hira Lall & Sons & Ors Vs M/s Lakshmi Commercial Bank reported in (2002) 6 SCC 389 where the Hon'ble Supreme Court held that when exclusive jurisdiction has been given to the Tribunal under the Act in respect of matters that could be dealt with under Section 17 of the Act, the jurisdiction in other courts to entertain and decide such matters for recovery of debts due to banks and financial institutions stood ousted as provided under Section 18 of the Act. Further Section 31 of the Act provides for transfer of cases from civil courts to the Tribunal.
In the case of State of M.P. & Anr. Vs Anshuman Shukla reported in (2008) 7 SCC 487 where the Hon'ble Supreme Court held that the Tribunal created by the Madhya Pradesh Adhikaran Adhiniyam, 1983 is a separate forum for the purpose of determination of disputes arising out of the works contract. In the said decision the Supreme Court came to the conclusion that its proceedings are judicial in nature subject to revisional jurisdiction of the High Court. Therefore, learned Tribunal for all intent and purport is a Court.
In the case of Brajnandan Sinha Vs Jyoti Narain reported in AIR 1956 SC 66, where the Supreme Court held that the pronouncement of a definitive judgment is thus considered the essential sine qua non of a Court and unless the until a binding a authoritative judgment can be pronounced by a person or body of persons it cannot be predicated that he or they constitute a Court. 30
The Privy Council in the case of - "Shell Co. of Australia Vs. Federal Commissioner of Taxation, 1931 Act 275 (A) thus defined "Judicial Power" at p. 295 :
"Is this right? What is "Judicial power"? Their Lordships are of opinion that one of the best definitions is that given by Griffith C.J. in - Huddart, Parker & Co. Vs. Moorehead, (1909) 8 CLR 330 at p. 357 (B) where he says : "I am of opinion that the words judicial power as used in S. 71 of the Constitution mean the power which every sovereign authority must of necessity have to decide controversies between its subjects, or between itself and its subjects, whether the rights relate to life, liberty or property. The exercise of this power does not begin until some tribunal which has power to give a binding and authoritative decision (whether subject to appeal or not) is called upon to take action."
Their Lordships further enumerated at p.297 certain negative propositions in relation to this subject.
"1. A tribunal is not necessarily a Court in this sense because it given a final decision;
2. Nor because it hears witnesses on oath;
3. Nor because two or more contending parties appear before it between whom it has to decide;
4. Nor because it gives decision which affect the rights of subjects;
5. Nor because there is an appeal to a Court;
6. Nor because it is a body to which a mater is referred by another body."
The Hon'ble Supreme also relied upon the definition of Court given in Section 3 of Evidence Act which is very wide as it reads :
"Court includes all Judges and Magistrate and all persons, except arbitrators legally authorized to take evidence."
The Hon'ble Supreme Court also held in the said decision that the least that is required of a Court is the capacity to delivery a "definitive judgment", and unless this power vests in a tribunal in any particular case, the mere fact that the procedure adopted by it is of a legal character and its has the power to administer an oath will not impart to it the status of a Court". Therefore, the tests laid down in the said decision.
Therefore, after considering the decision and after scrutinizing the Sections 34 and 35 of the Arbitration and Conciliation Act, 1996 we cannot held that the arbitral tribunal constitute at the choice of the parties appointing the arbitrators of their choice cannot be treated as a Court.
In the case of A.B.C. Laminart Pvt. Ltd. Vs. Andhra Pradesh Agencies reported in 1989 2 SCC 163 where the Hon'ble Supreme held that when the clause is clear unambiguous and specific accepted notions of contract would bind the parties and unless the absence of ad idem can be shown, the other Courts should avoid exercising jurisdiction. As regards construction of the ouster clause when words like alone, only, exclusive, and the like have been used there may be no difficulty. Even without such words in appropriate cases the maxim expressio unius est exclusion alterius - expression of one is the exclusion of another may be applied. What is an appropriate case shall depend on the facts of the case. In such a case mention of one thing may imply exclusion of 32 another. When certain jurisdiction is specified in a contract an intention to exclude all others from its operation may in such cases be inferred. It has therefore to be properly construed.
In the case of D.R. Yadav & Anr. Vs. R.K. Singh & Anr. reported in 2003 7 SCC 110 has no application.
In the case of Morgan Securities and Credit Pvt. Ltd. Vs. Modi Rubber Ltd. reported in 2006 12 SCC 642 where the Hon'ble Apex Court held that whether the provisions of the Arbitration & Conciliation Act, 1996 would prevail over the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the SICA). In the said decision the Court further held that the arbitral proceedings may continue during the pendency of an enquiry pursuant to a reference under SICA.
In the case of Indian Oil Corporation Ltd. & Ors. Vs. Raja Transport Pvt. Ltd. reported in (2009) 8 SCC 520 where the Hon'ble Apex Court held that the arbitration is a binding voluntary alternative dispute resolution process by a private forum chosen by the parties. The arbitration clause is nothing but a package which may provide for disputes arbitrable at what stage the disputes are arbitrable who should be the arbitrator what is the avenue of the law should be govern by the advocates etc. When a party agreed to entertain into such agreement with a full knowledge and that open eyes with regard to the provisions 33 of the said arbitration agreement and thereby is agreeable for settlement of the disputes of arbitration cannot subsequently turn around and dispute the same.
In the case of Paramjeet Singh Patheja Vs. ICDS Ltd. reported in (2006) 13 SCC 322 where the Hon'ble Apex Court held that litigation is therefore very different from arbitration is clear. The former is a legal action in a court of law where judges are appointed by the State; the latter is the resolution of a dispute between two contracting parties by person chosen by them to be arbitrators. These persons need not even necessarily be qualified trained judges or lawyers. This distinction is very old and was picturesquely expressed by Edmund Davies, J. in these words:
"Many years ago, a top-hated gentleman used to parade outside these law courts carrying a placard which bore a stirring injunction 'Arbitrate - don't Litigate'."
Moreover, the position that arbitrators are not courts is quite obvious and this Court noted the position as under in two decisions:
"....But the fact that the arbitrator under Section 10-A is not exactly in the same position as a private arbitrator does not mean he is a tribunal under Article
136. Even if some of the trappings of a court are present in his case, he lacks the basic, the essential and the fundamental requisite in that behalf because he is not invested with the State's inherent judicial power...He is not a tribunal because the State has not invested him with its inherent judicial power and the power of 34 adjudication which he exercises is derived byhim from the agreement of the parties." (Engg. Mazdoor Sazbha v. Hind Cycles Ltd.23, AIR p. 882, para 16.) "4. There was no dispute that the arbitrator appointed under Section 19(1)(b) [for the Defence of India Act, 1939] was not a court." (Collector v. Gauri Shankar Misra24, AIR p. 386, para 4.) In the case of SBP & Co. Vs Patel Engineering Ltd. & Anr., reported in 2005 8 SCC 618 where the Hon'ble Supreme while disapprove the stand adopted by some of the High Courts that any order passed by the Arbitral Tribunal is capable of being corrected by the High Court under Articles 226 or 227 of the Constitution. The Arbitral Tribunal is, after all, a creature of a contract between the parties, the arbitration agreement, even though, if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the Arbitral Tribunal. It will still be a forum chosen by the parties by agreement.
In the case of State of Madhya Pradesh and Anr. Vs. Anshuman Shukla, reported in 2008 7 SCC 487 where the Hon'ble Supreme Court held that:
The definition of "courts" under the Evidence Act is not exhaustive (see Empress v. Ashootosh Chuckerbutty. Although the said definition is for the purpose of the said Act alone, all authorities must be held to be courts within the meaning of the said provision who are legally authorized to take evidence. The word "court" under the said Act has come up for consideration at different times under the different statues.
The Supreme Court after considering the fact that the State of Madhya Pradesh has created a separate forum for the purpose of determination of disputes and the Members of the Tribunal are not nominated by the parties and therefore the said Tribunal is not one which can be said to be a domestic Tribunal. The disputes do not have any control over their appointment. The Tribunal may reject a reference at the threshold. It has the power to summon records. It has the power to record evidence. Its functions are not limited to one Bench. The Chairman of the Tribunal can refer the disputes to another Bench. Its decision is final. It can award costs. It can award interests. The finality of the decision is forfeited by a legal fiction created by making an award a decree of Civil Court. It is executable as a decree of a civil court. The award of the Arbitral Tribunal is not subject to the provisions of the Arbitration Act, 1940 and the Arbitration and Conciliation Act, 1996. The provisions of the said Acts have no application.
We are, therefore, of the opinion that the Tribunal for all intent and purport is a court. The Tribunal has to determine a lis. There are two parties before it. Its proceedings are judicial proceedings subject to the revisional order which may be passed by the High Court.
In the case of Kotak Mahindra Bank Ltd. Vs. Prem Power Construction Pvt. Ltd., reported in 2008 2 Arb LR 39 where the Single Bench of the Delhi High Court came to the conclusion that a perusal of the provisions of Section 18 and 36 34 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993, does not indicate that the parties have mutually agreed to choose a forum of adjudication.
It appears that the Hon'ble First Court correctly came to the conclusion that a Court under Section 9 of 1996 Act would not be exercising its jurisdiction as a Court within the meaning of the expression "No Court or other authority" but it would derive its power from the Arbitration Agreement which appears to fall outside the scope of the bar under Section 18 of the said Act. Accordingly we affirm the order on such point that the Court does not finally adjudicate upon any matter under Section 9 of the 1996 Act. Such arrangement has been made at any interim measure the other question which has been urged before us with regard to the forum selection clause we also find that in this case the said forum selection clause is clear and unambiguous. It further appears that the lending Bank is situated at Kolkata. The Forum Selection Clause also made it clear that any competent Court in Calcutta would have the jurisdiction to adjudicate the disputes.
It further appears that the appellant themselves filed an application in Alipore Court even if we accept that the lending office of the Bank is in Salt Lake City is within the jurisdiction of the Alipore Court.37
Therefore, the said conduct of the appellant would also show that they cannot pursue such plea before us since they have taken steps before a Court within the jurisdiction. Accordingly we hold that this Court has jurisdiction to entertain the matter as held by the Hon'ble First Court.
We find that no ground has been made out by the appellant to interfere with the order passed by the Hon'ble First Court and in our considered opinion the said order does not suffer from any illegality or irregularity.
For the discussions and reasons stated by us we affirm the said judgment and/or order of the learned Trial Court and we find that there is no grounds have been made out by the appellant to interfere with the order passed by the Hon'ble First Court and in our considered opinion and the said order does not suffer from any illegality or irregularity.
For the reasons stated hereinabove the appeal is dismissed. Photostat certified copy of this order, if applied for, be supplied to the parties.
(PINAKI CHANDRA GHOSE, J.) I agree.38
(ASIM KUMAR RAY, J.)