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Section 9 in THE ARBITRATION AND CONCILIATION ACT, 1996
THE ARBITRATION AND CONCILIATION ACT, 1996
Section 9 in The Arbitration Act, 1940
The Specific Relief Act, 1963
Section 9(ii)(b) in THE ARBITRATION AND CONCILIATION ACT, 1996

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Madras High Court
M/S.Sundaram Bnp Paribas Home vs Mr.Mir Ali on 3 January, 2012
       

  

  

 
 
 IN THE HIGH COURT OF JUDICATURE AT MADRAS
					
DATED :        03.01.2012

CORAM :

THE HONOURABLE Mrs.JUSTICE R.BANUMATHI
and
THE HONOURABLE Ms.JUSTICE R.MALA

O.S.A.NO.109 of 2011

M/s.Sundaram BNP Paribas Home 
Finance Limited, 							
Sundaram Towers,
46, Whites Road,
Chennai-600 014.
rep. by its Asst. Manager Receivable (Legal)
Mr.N.Udayakumar.						... Appellant
						
Vs.

1.Mr.Mir Ali
H.No.8-1-332/3/B/37,
Aravind Colony,
2nd Lane of Shaiket Nala,
Toli Chowki,
Hyderabad  500 008.
2.The Manager,
Human Resource Department,
Mahindra Satyam,
Satyam Computer Service Limited,
INFOCITY, Unit-12, Plot No.35 & 36,
Madhapur, Hitech City,
Hyderabad  500 091.					... Respondent

	Prayer: 	Original Side Appeal is filed under Order XXXVI, Rule 1 of Original Side Rules read with Clause 15 of the Letters Patent against the Order dated 25.01.2011 made in Application No.5363 of 2010 on the file of this Court.

		For Appellant	:	Ms.B.Rekha

		For Respondent	:	Ms.Pushpa Menon


JUDGMENT

R.BANUMATHI,J Being aggrieved by dismissal of application [A.No.5363 of 2010] filed under Section 9 of Arbitration and Conciliation Act and declining to grant pro-order prohibiting the Garnishee/2nd Respondent from making payment to the 1st Respondent-Mir Ali, Appellant-M/s.Sundaram BNP Paribas Home Finance Limited has filed this appeal.

2. Brief facts are that Appellant sanctioned housing loan to the 1st Respondent for a sum of Rs.44 lakhs which is repayable with variable interest at 12.75% per annum. 1st Respondent had entered into loan agreement on 30.01.2010. To secure the loan, 1st Respondent had also executed promissory note dated 30.01.2010 for a sum of Rs.44 lakhs. One Tasleem Fatima joined as co-borrower of the loan. A mortgage deed was also executed mortgaging the house property purchased. Case of Appellant is that 1st Respondent had committed default in payment of instalments for more than 90 days. Therefore, the said loan account of the 1st Respondent was declared as Non-Performing loan on 30.06.2010. Further case of Appellant is that as on 20.09.2010, a sum of Rs.46,83,533/- was due and liable to be paid by the 1st Respondent and the co-borrower under the loan agreement.

3. Under Article 11 of the said Loan Agreement [30.01.2010], if any dispute, difference or claim arise against the 1st Respondent under the said agreement, whether during its subsistence or thereafter, the same shall be settled by Arbitration in accordance with the Arbitration and Conciliation Act. Arbitration proceedings was also commenced and one Mr.Inbavijayan, Advocate has been appointed as an Arbitrator.

4. Appellant had also initiated proceedings under Securitization Act by issuing possession notice under Section 13(4) of SARFAESI Act. Stating that Appellant's claim needs to be secured till the recovery of the amount, Appellant has filed application under Section 9(ii)(b)(d)&(e) of Arbitration and Conciliation Act for issuing prohibitory order prohibiting the 2nd Respondent-Garnishee/employer of 1st Respondent from making any payment to the extent of the claim amount of Rs.46,83,533/-.

5. Resisting the application, 1st Respondent has filed counter stating that Appellant had issued possession notice under Section 13(4) of SARFAESI Act read with Rule 8 (1&2) of Security Interest (Enforcement) Rules, 2002 and had also taken symbolic possession of the said property and while so, Appellant's action in filing application and securing the stay of payment of the entire salary of the 1st Respondent is illegal, fraudulent, and uncalled for. 1st Respondent has also averred that Appellant has suppressed the material fact of having taken symbolic possession of the property which is security for the loan as early as on 27.09.2010 and therefore, prayed for dismissal of the application.

6. Upon consideration of rival contentions, the learned Judge dismissed the application filed under Section 9 of Arbitration and Conciliation Act holding that the property was already mortgaged to the Appellant and steps had been taken under SARFAESI Act and when the loan amount is secured by way of immovable property, Appellant must take efforts only to sell the mortgaged property, instead of rushing to the Court by filing Section 9 application. The learned Judge further held that the 2nd Respondent-employer of 1st Respondent cannot be directed to withhold the huge amount of Rs.46,83,533/- from the monthly salary of 1st Respondent.

7. Challenging the impugned order, Ms.B.Rekha, learned counsel for Appellant has contended that even though the Appellant had initiated proceedings under Securitization Act, Appellant has every right to proceed against the 1st Respondent under Section 9 of Arbitration and Conciliation Act. It was further submitted that Appellant's claim need to be secured till the recovery of the total amount due under the said loan from the 1st Respondent and under Section 9(ii)(b)(d)&(e) of Arbitration and Conciliation Act, the High Court is empowered to pass suitable orders for securing the claim of the Appellant before or during the arbitral proceedings, at any time after making the arbitral award but before it is enforced under Section 36 of the Act. It was submitted that the learned Judge failed to appreciate that the value of the mortgaged property is not adequate enough and the learned Judge erred in dismissing Section 9 application.

8. Ms.Pushpa Menon, learned counsel for 1st Respondent has submitted that Section 9 of the Act intended only as protective measure and when the property has been sufficiently secured, the Appellant cannot invoke Section 9 as an arm twisting tactics. It was further submitted that Section 9 is not an independent provision of Civil Procedure Code. It was further submitted that in view of Order 21, Rule 46A of CPC, when the debt is sufficiently secured by mortgage or charge, the garnishee proceedings is not maintainable and Appellant cannot seek for any prohibitory order against the garnishee.

9. Case of Appellant is that 1st Respondent had committed default in repaying the housing loan and failed to pay the amount inspite of several reminders. Loan account of 1st Respondent was declared as Non-Performing loan on 30.06.2010. Per contra, case of 1st Respondent is that he has effected payment up to the month March 2010 and thereafter, due to financial difficulties, he was unable to regularly repay the loan amount and when he met the Appellant's Officers on several occasions and requested them to provide the 1st Respondent an extended period of time to enable him to make arrangements for effecting repayments.

10. As alleged by the Appellant whether there was willful default in repayment of the loan and whether as alleged by the 1st Respondent he paid the loan up to the month of March 2010 and whether he was genuinely prevented from repaying the loan are the points to be resolved in the arbitral proceedings. The short point falling for consideration in this appeal is whether Appellant has made out a prima facie case for interim measure of protection in respect of the prohibitory order against the Garnishee/Employer from disbursing the amount to the tune of Rs.46,83,533/-.

11. 1st Respondent is working in the office of the 2nd Respondent-Garnishee. 2nd Respondent-Garnishee is salary disbursing authority of the 1st Respondent. Case of Appellant is that apart from the mortgaged property, the only valuable security available to the Appellant is the monthly income of the 1st Respondent which is being paid by the 2nd Respondent-Garnishee and if the garnishee makes entire payment to the 1st Respondent, Appellant will not be able to realise the amount due to them. Since the claim of Appellant needs to be secured, Appellant seeks for prohibitory order prohibiting the 2nd Respondent-Garnishee from making any payment to the extent of claim amount i.e. Rs.46,83,533/-.

12. Section 9 of Arbitration and Conciliation Act enables the parties to approach the Court for certain interim measure of protection in respect of the enumerated remedies available thereon. Section 9 of the Act contemplates interim measure to protect and secure the amount in dispute in arbitration. In respect of any direction/interim measure of protection [Section 9(ii)(b)(d)&(e)], the Court may pass appropriate order as may appear to the Court to be just and convenient. For passing interim order to the garnishee/order of the interim measure of protection, the applicant has to prove that the Respondent is intending to defeat, delay, obstruct the execution of the Award. While considering the grant of interim measure of protection and power under Section 9 of Arbitration and Conciliation Act and observing that Section 9 is not totally independent of the principles for grant of interim injunction, in AIR 2007 SC 2563 [ADHUNIK STEELS LTD. V. ORISSA MANGANESE AND MINERALS PVT. LTD.], the Supreme Court held as under:-

"14. .... When the grant of relief by way of injunction is, in general, governed by the Specific Relief Act and Section 9 of the Act provides for an approach to the court for an interim injunction, we wonder how the relevant provisions of the Specific Relief Act can be kept out of consideration. For the grant of that interim injunction has necessarily to be based on the principles governing its grant emanating out of the relevant provisions of the Specific Relief Act and the law bearing on the subject. Under Section 28 of the Act of 1996, even the arbitral tribunal is enjoined to decide the dispute submitted to it, in accordance with the substantive law for the time being in force in India, if it is not an international commercial arbitration. So, it cannot certainly be inferred that Section 9 keeps out the substantive law relating to interim reliefs. .....

18. It is true that the intention behind Section 9 of the Act is the issuance of an order for preservation of the subject-matter of an arbitration agreement. ...... But, at the same time, whether an interim measure permitting Adhunic Steels to carry on the mining operations, an extraordinary measure in itself in the fact of the attempted termination of the contract by O.M.M. Private Limited or the termination of the contract by O.M.M. Private Limited, could be granted or not, would again lead the court to a consideration of the classical rules for the grant of such an interim measure. Whether an interim mandatory injunction could be granted directing the continuance of the working of the contract, had to be considered in the light of the well-settled principles in that behalf. Similarly, whether the attempted termination could be restrained leaving the consequences thereof vague would also be a question that might have to be considered in the context of well settled principles for the grant of an injunction. Therefore, on the whole, we feel that it would not be correct to say that the power under Section 9 of the Act is totally independent of the well known principles governing the grant of an interim injunction that generally govern the courts in this connection. So viewed, we have necessarily to see whether the High Court was justified in refusing the interim injunction on the facts and in the circumstances of the case."

The Supreme Court thus held that provision of Section 9 of Arbitration and Conciliation Act is to be based on the principles governing the provisions of the Specific Relief Act and is not totally an independent of the provisions of Civil Procedure Code.

13. In ADHUNIK STEELS LIMITED V. ORISSA MANGANESE AND MINERALS PVT. LTD. [AIR 2007 SC 2563] and ARAVIND CONSTRUCTION V. KALINGA MINERAL CORPORATION [(2007) 6 SCC 798], the Supreme Court drew the distinction between applicability of Code of Civil Procedure in the arbitration proceedings and in a Court proceedings relating to arbitration. In case of arbitration proceedings, application of Code of Civil Procedure is not mandated; but in Court proceedings, even though relate to arbitration, Code of Civil Procedure will be applicable, insofar as, it does not stand excluded. Observing that the conclusive words of Section 9 "....... and the Court shall have the same power for making orders as it has for the purpose and in relation to any proceedings before it" clearly suggest that the normal rules that govern the Court in the grant of interim orders is not sought to be jettisoned by the provision, in ADHUNIK STEELS LIMITED, the Supreme Court held as under:-

"10. It is true that Section 9 of the Act speaks of the court by way of an interim measure passing an order for protection for the preservation, interim custody or sale of any goods, which are the subject matter of the arbitration agreement and such interim measure of protection as may appear to the court to be just and convenient. The grant of an interim prohibitory injunction or an interim mandatory injunction are governed by well known rules and it is difficult to imagine that the legislature while enacting Section 9 of the Act intended to make a provision which was dehors the accepted principles that governed the grant of an interim injunction. Same is the position regarding the appointment of a receiver since the Section itself brings in, the concept of 'just and convenient' while speaking of passing any interim measure of protection. The concluding words of the Section, "and the court shall have the same power for making orders as it has for the purpose and in relation to any proceedings before it" also suggest that the normal rules that govern the court in the grant of interim orders is not sought to be jettisoned by the provision. Moreover, when a party is given a right to approach an ordinary court of the country without providing a special procedure or a special set of rules in that behalf, the ordinary rules followed by that court would govern the exercise of power conferred by the Act. On that basis also, it is not possible to keep out the concept of balance of convenience, prima facie case, irreparable injury and the concept of just and convenient while passing interim measures under Section 9 of the Act." [underlining added]

14. Relying upon the decision in ADHUNIK STEELS LIMITED, in MANU/TN/2871/2011 [A-1 BIZ SOLUTIONS CHEENAI REP. BY ITS CHIEF EXECUTIVE OFFICER UJWAL RAO V. CASCADE BILLING CENTER INCORPORATED REP. BY ITS PRESIDENT DEV ANDERSON], the Division Bench of this Court in which one of us was a member  Justice R.Banumathi held as under:-

"9. ...... It is well settled law that security can be ordered only in cases where the other party is likely to abscond or there is positive evidence to show that the other party is taking steps to dispose of the property with an intention to deceive or defeat the decree or award to be passed by the Courts or Tribunal. In this case, the Respondent being a company, it is not possible for them to abscond so easily or they could dispose of their asset immediately. Therefore, the conclusion arrived at by the learned Judge that the present application has been filed by the Appellant only to pressurise the Respondent to settle the amount is well founded. It is needless to mention that filing of an application under Section 9 of the Act can be entertained by this Court only in exceptional case and this is not a case where this Court find it fit and proper to entertain the application of the Appellant." ....

11. Therefore, it is evident from the decision of the Honourable Supreme Court that wherever the powers of the Court are invoked with the objective of supporting the arbitration, the Courts must act cautiously. The Court would not be justified in granting interim orders and relief merely for the asking of it. In fact, if a similar analogy is worked out in case of attachment of immovable property and seeking security under Order 38 Rule 5 of Code of Civil Procedure, the Honourable Supreme Court as well as this Court have time and again held that the intention of the parties to deprive the other party from enforcing the decree should be manifestly clear, pleaded, proved and orders of attachment cannot be granted as a matter of routine. The same principle will also apply to the cases governing Section 9 of the Act. ....."

15. In the light of the principles laid down by the Hon'ble Supreme Court, let us consider the present case. Appellant seeks prohibitory order against the Garnishee/employer of 1st Respondent from making any payment to the 1st Respondent. As pointed out earlier, as security for the loan, property has been mortgaged to the Appellant. On 23.09.2010, Appellant issued possession notice under Section 13(4) of SARFAESI Act read with Rule 8(1&2) of Security Interest (Enforcement) Rules, 2002 and taken symbolic possession of the said property. Appellant has thus initiated action under Securitization Act to realise the loan amount by proceeding against the security. When the Appellant has proceeded against the mortgaged property offered as security, Appellant is not justified in invoking Section 9 of Arbitration and Conciliation Act. That apart Appellant has sought for pro-order prohibiting the garnishee from making the payment to the tune of Rs.46,83,533/-. If such huge amount of Rs.46,83,533/-is to be attached, virtually, 1st Respondent will be left with no amount for sustenance. As per Section 60(1)(ia) of C.P.C., only one-third of take home salary could be attached. Appellant is not at all justified in seeking pro-order prohibiting from making payment of Rs.46,83,533/-.

16. When the debt is sufficiently secured by way of mortgage, Appellant cannot invoke garnishee proceedings. Order 21, Rule 46A CPC deals with notice to garnishee. Order 21, Rule 46A (1) reads as under:-

"R.46A. Notice to Garnishee.- The Court may in the case of a debt (other than a debt secured by a mortgage or a charge) which has been attached under rule 46, upon the application of the attaching creditor, issue notice to the garnishee liable to pay such debt, calling upon him either to pay into Court the debt due from him to the judgment-debtor or so much thereof as may be sufficient to satisfy the decree and costs of execution, or to appear and show cause why he should not do so."

17. Thus as per Order 21, Rule 46A CPC, garnishee notice could be issued only "in respect of the debt other than the debt secured by the mortgage or charge". As pointed out earlier, in the case on hand, loan amount is secured by mortgage and therefore, Appellant cannot seek for prohibitory order against the garnishee.

18. Under Order 21, Rule 46A CPC, Court may issue notice to garnishee in case of debt which has been attached under Order 21, Rule 46 CPC. Order 21, Rule 46 CPC deals with "attachment of debt, share and other property not in possession of judgement-debtor". Order 21, Rule 46 CPC reads as under:-

"R.46. Attachment of debt, share and other property not in possession of judgment-debtor. - (1) In case of

(a) a debt not secured by a negotiable instrument,

(b) ...........

(c) ..........."

Thus there can be attachment of debt, share and other property not in possession of the judgment-debtor and only in case of "debt not secured by a negotiable instrument."

19. For securing the loan amount, 1st Respondent had also executed promissory note dated 30.1.2010. Attachment under Order 21, Rule 46 CPC - garnishee proceedings could be ordered only when it is not secured by any negotiable instrument. In the present case, loan amount advanced to 1st Respondent is not only secured by mortgage, but also by promissory note. When the debt is sufficiently secured, Appellant cannot seek for prohibitory order against the garnishee. Appellant is not entitled to any interim measure of protection under Section 9 of Arbitration and Conciliation Act and the learned Judge has rightly dismissed the application and we do not find any reason warranting interference with the order of learned Judge and the appeal is liable to be dismissed.

20. Before we part with the matter, the conduct of the Appellant need to be pointed out. Housing loan of Rs.44 lakhs, being 80% of the value of the house was sanctioned to the 1st Respondent in January 2010. It was stated that under SARFAESI proceedings initiated, the property was sold for a very low amount of Rs.18 lakhs. We are at loss to understand as to how the property which was worth about more than Rs.50 lakhs in 2010 could have been sold for a less amount of Rs.18 lakhs. However, this is the matter to be gone into only by appropriate proceedings and we leave the matter as such keeping the issues open.

21. In our considered view, filing of application under Section 9 of Arbitration and Conciliation Act by the Appellant appears to be an arm- twisting tactics to bring pressure upon the 1st Respondent. Therefore while dismissing the appeal, we are inclined to impose cost upon the Appellant.

22. In the result, the appeal is dismissed with cost of Rs.25,000/- payable by the Appellant to the 1st Respondent. Consequently, connected M.P. is closed.

                                                        [R.B.I.,J]            [R.M.,J]
                                                                   03.01.2012

bbr

Index: Yes/No
Internet: Yes/No

To
The Sub Assistant Registrar (Original Side)
High Court, Madras.
                                                                            R.BANUMATHI,J
                                                                            and
                                                                            R.MALA,J


											bbr














							               Judgment
								             in
							         O.S.A.No.109 of 2011






                                                                                      03.01.2012