I. Case Reference
|Case Citation||:||(2022) ibclaw.in 46 DRAT|
|Case Name||:||Cholamandalam Investment & Finance Ltd. Vs. Hotchand Kishinchand Talreja & 2 Ors.|
|Appeal No.||:||I.A. No. 230/2022 (Stay) In Misc. Appeal No. 65/2022|
|Court/Bench||:||DRAT Mumbai Bench|
|Present for Appellant(s)||:||Mr. Sanjay Anabhawane, i/b M/s. M & S Legal Ventures, Advocate|
|Present for Respondent(s)||:||Mr. Raj Dani, i/b Mr. Narnedra Ramdani, Advocate|
|Chairperson||:||Mr. Justice Ashok Menon|
II. Brief about the decision
The main issue of contention in this Appeal is whether the Appellant is entitled to avail the remedy u/s 14 of the SARFAESI Act in view of the existence of the Arbitration clause in the loan agreement and thereby proceeding under the provision under the Arbitration Act. It is for this purpose that the Respondents relied upon the decision of the Hon’ble Supreme Court of India in Vidya Drolia & Ors. Vs. Durga Trading Corporation (2019) ibclaw.in 148 SC.
The two crucial points that arise for determination in this Appeal are, first, whether the Ld. P.O. was justified in holding that prima facie the arbitration proceedings and Award passed ex-parte were defective and secondly, whether the Appellants were justified in moving the C.M.M. Court u/s 14 of the SARFAESI Act despite having resorted to the Arbitration Proceedings.
The question as to whether in view of an Arbitration Agreement between the parties, the creditor could resort to the provision so the SARFAESI Act is now settled by the Hon’ble Supreme Court of India in M.D. Frozen Foods Export Pvt. Ltd. & Ors. Vs. Hero Fincorp Ltd. (2017) ibclaw.in 94 SC which was relied upon by the Hon’ble Apex Court in another decision Indiabulls Housing Finance Ltd. Vs. Deccan Chronicle Holdings Ltd. (2018) ibclaw.in 108 SC.
In Indiabulls (Supra), the Hon’ble High Court of Andhra Pradesh held that where Section 9 of the Arbitration Act was invoked by the creditor, initiation of proceedings under the SARFAESI Act was impermissible. The Hon’ble Apex Court, after appreciating Section 35 and 37 of the SARFAESI Act held that Arbitration Proceedings and proceedings under the SARFAESI Act can be resorted to simultaneously relying upon the judgment of the Hon’ble Apex Court in M.D. Frozen Foods (Supra).
Non-arbitrability may arise in case of the implicit provision in a statute conferring and creating special rights to be adjudicated by the Courts/public fora, which right includes enforcement of order/provisions that cannot be enforced and applied in case of arbitration. The Ld. P.O. was probably carried away by the observation of the Hon’ble Apex Court in Vidya Drolia (Supra).
The Ld. P.O. did not comprehend the decision in Vidya Drolia (Supra) appropriately. The findings in M.D. Frozen Foods and Indiabulls (Supra) have been upheld in Vidya Drolia (Supra) indicate that even prior arbitration proceedings are not a bar to proceedings under the N.P.A. Act. The N.P.A. Act sets out an expeditious, procedural methodology enabling the financial institutions to take possession and sell secured properties for non-payment of dues. Such powers, it is obvious, cannot be exercised through arbitral proceedings.
What is to be understood is that arbitral proceedings are a form of adjudication of the dispute between the appellant and the respondents whereas Sarfeasi measures are provided for expeditious action against the debtors. It is true that R.D.B. Act does not provide the option to the creditor to go for relief before a Civil Court and the adjudicatory process has to be adjudicated by the D.R.T. alone. Simultaneous proceedings before the D.R.T. under the R.D.B. Act as well as proceedings under the SARFAESI Act without approaching the D.R.T. or the Civil Court are also maintainable. In the instant case, the Appellant is a financial institution coming under the provisions of the SARFAESI Act. But, at the same time, it is not a financial institution coming under the provisions of the R.D.B. Act. Under the circumstances, the Appellant could not have moved the D.R.T. with an Original Application seeking an adjudication of the dispute pertaining to the debt with the Respondents. The only adjudicatory process that is available to the Appellant is by way of arbitration and, therefore, the appellant rightly resorted to the provisions of the Arbitration provided in the loan agreement. Whether the Arbitration Award passed ex-parte is questionable is a matter for challenge under Section 34 of the Arbitration & Conciliation act, 1996. The D.R.T. cannot decide on the subject and has no jurisdiction to do so.
The Ld. Presiding Officer has in the impugned order overstepped his jurisdiction in deciding that prima facie the arbitration proceedings were at fault. The Ld. P.O. also went into error in deciding that Sarfaesi measures are not available to the Appellant in view of the Arbitration Proceedings resorted to by the Appellant. Even though the Ld. P.O. relied upon the decision in Mithilanchal Industries (Supra), it has not been pointed out as to what the defect in the notice issued by the Appellant u/s 13 (2) of the SARFAESI Act was.
Under the circumstances, I find that the impugned order is erroneous and requires to be set aside.
In view of the infirmity of the order which has been put to challenge in this Appeal, instead of disposing of the application for a stay I find it appropriate that the Appeal itself be disposed of by setting aside the impugned interlocutory order of the Ld. P.O. dated 19.03.2022 in S.A. No.217/2021. The Ld. P.O., D.R.T.-I, Ahmedabad, is directed to dispose of S.A. No. 217/2021 itself on merits keeping in view the aspects mentioned above, as expeditiously as possible.
The Appeal is allowed as above, though without costs. All Miscellaneous Applications, if any, are dismissed as infructuous.(p7-18)
III. Full text of the judgment
Disclaimer: Brief about the decision, summary of case laws, case laws notes, case reference etc. are prepared out of original judgement/rulings. Although, PDF copy attached in case law is downloaded from Court/Tribunal website, however, IBC Laws does not authenticate the contents of these Orders/Judgments. These Orders/Judgments are not certified copies issued by the judicial authorities. Any material hosted on the website does not constitute any opinion of the IBC Laws, and should not be used to frame any legal opinion or be used in legal proceedings. We advise you to refer the same for understanding purposes only and use the original certified copy of the judgment. IBC Laws is not liable for any loss or damage caused to a person because of text/content posted by us on the website. The post and its content, archives and images are Copyright by IBC Laws. Read More