- Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
- Sections 5 and 8 of the Arbitration and Conciliation Act, 1996
- HDFC Bank Ltd. Vs. Satpal Singh Bakshi reported at 2013 (134) DRJ 566 (FB)
- Nahar Industrial Enterprises Limited Vs. Hong Kong and Shanghai Banking Corporation reported at (2009) 8 SCC 646
- Indian Bank Vs. ABS Marine Products (P) Ltd. reported at (2006) 5 SCC 72
- RDB Act, 1993
- S. 17. Jurisdiction, powers and authority of Tribunals
- S. 18. Bar of Jurisdiction
- S. 34. Act to have over-riding effect
- SRFAESI Act, 2002
- S. 34. Civil court not to have jurisdiction
- Union of India & Ors. Vs. Alok Kumar reported at (2010) 5 SCC 349
- Surya News Print & Papers Pvt. Ltd. Ghantasala & Ors. VS. Branch Manager, State Bank of India, Kalahandi reported at 2010 (3) R.A.J. 458 (Ori)
- Sudha Khemka & Anr. Vs. Central Bank of India & Ors. reported at 2014 SCC OnLine Cal 7924: (2014) 3 Cal LJ 119: (2014) 4 ICC 704
- Kingfisher Airlines Limited Vs. Prithvi Malhotra reported at (2013) 1 AIR Bom R 255.
- i) Jayantilal Hansraj Shah & Ors. Vs. Hemkunverben Dolatrial Dave and Ors. reported at MANU/GJ/0202/1994
- ii) Niranjan Chatterjee & Ors. Vs. State of West Bengal & Ors. reported at 2007 (3) CHN 683
- iii) Pijush Kanti Chowdhury Vs. State of West Bengal & Ors. reported at 2007(3) CHN 178
- iv) Viswapriya (India) Limited & Ors. Vs. Government of Tamil Nadu & Ors. reported at MANU/TN/2482/2015
- v) Him Privesh Environment Protection Society Vs. State of Himachal Pradesh & Ors. reported at MANU/HP/0687/2012.
- Paramjeet Singh Patheja v. ICDS Ltd., (2006) 13 SCC 322
- 31. Transfer of pending cases
- Kotak Mahindra Bank Ltd. Vs. Prem Power Construction Pvt. Ltd. Reported at 2008 (2) Arb LR 39
- Girnar Traders Vs. State of Maharashtra reported at (2011) 3 SCC 1
- Chloro Controls India Pvt. Ltd. Vs. Severn Trent Water Purification Inc. & Ors. reported at 2013 (1) SCC 641
- National Highway Authority of India Vs. Oriental Structure Engineer Ltd. – Gammon India Ltd. (JV) reported at AIR 2013 Delhi 67
- Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association, Madras reported at AIR 1992 SC 1439
- Pradeep Kumar Biswas v. Indian Institute of Chemical Biology, (2002) 5 SCC 143
- Som Prakash Rekki v. Union of India, (1981) 1 SCC 449, AIR 1981 SC 212
- Rajasthan State Electricity Board v. Mohan Lal, AIR 1967 SC 1857 (1863): (1967) 3 SCR 377
- Rajasthan State Road Transport Corporation and Anr. v. Bal Mukund Bairwa, 2009 (2) SCALE 428
- Union of India and Another v. Delhi High Court Bar Association and Others [(2002) 4 SCC 275]
- United Bank of India Vs. Abhijit Tea Co. (P) Ltd., (2000) 7 SCC 357
Recovery of Debts Due to Banks and Financial Institutions Act, 1993 – Section 19 – Arbitration and Conciliation Act, 1996 – Sections 9 & 11- Application for appointment of an arbitrator at the instance of a borrower – proceeding under RDB Act is pending before the Debt Recover Tribunal – Held, If the petitioner instead of filing an application under Section 9 could have filed a suit prior to initiation of recovery proceeding which would be otherwise maintainable there is no reason to conclude that the application for appointment of arbitration in terms of the arbitration clause in the agreement would be barred. Moreover, the application under Section 9 was filed prior to the filing of the recovery proceeding and the respondent has participated in such proceeding and has received substantial benefits in terms of the orders passed in such proceeding. In an application under Section 11 the Court is required to find out if there is existence of a valid arbitration clause. In view of a clear finding that there is an arbitration agreement between the parties and the party has approached the appropriate High Court, the application under Section 11 of the Arbitration and Conciliation Act is allowed.
ORIDINARY ORIGINAL CIVIL JURISDICTION
THE HON’BLE JUSTICE SOUMEN SEN
Judgment On : 2nd August, 2016
A.P. No. 6 of 2016
AMRIT JAL VENTURES PRIVATE LIMITED
SREI INFRASTRUCTURE FINANCE LIMITED
For the petitioner : Mr. Abhrajit Mitra, Sr. Adv. Mr. Jishnu Chowdhury, Adv. Mr. Abhijit Sarkar, Adv. Mr. Aritra Basu, Adv. Ms. A. Chatterjee, Adv. Mr. Ratul Das, Adv. Mr. Abhik Chitta Kundu, Adv. For the respondent : Mr. Ratnanko Banerjee, Sr. Adv. Mr. Swatarup Banerjee, Adv. Mr. Shaunak Mitra, Adv. Ms. Dwidhita Bhaduri, Adv.
Soumen Sen, J.:- The initiation of an arbitration proceeding on the basis of an arbitration clause in an agreement by appointment of an arbitrator at the instance of a borrower when a proceeding under
# Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(hereinafter referred to as the “RDB Act”) is pending before the Debt Recover Tribunal, is the central issue in this application for appointment of an arbitrator.
The respondent contends that the recovery of RDB Act is a special statute and all disputes coming within the purview of the said Act can only be adjudicated by a Tribunal duly constituted under the RDB Act.
Mr. Abhrajit Mitra, learned Senior Counsel appearing on behalf of the petitioner submits that the parties have voluntarily agreed to have all there disputes and differences adjudicated by way of arbitration and in view of
# Sections 5 and 8 of the Arbitration and Conciliation Act, 1996
the Tribunal is precluded from proceeding with the application filed by the Bank under Section 19 of the RDB Act. It is submitted that although in the event it is contended and held that Section 5would not apply to a proceeding before the Tribunal even then by reason of an agreement between the parties, the bank cannot resile from having the said dispute adjudicated by arbitration. It is submitted that the parties have voluntarily agreed to have their disputes resolved through arbitration notwithstanding the introduction of the 1993 Act and the Bank having agreed to such procedure and mode of adjudication has consciously abandoned and/or waived its right to claim an adjudication otherwise then by way of an arbitration.
The learned Senior Counsel has relied upon the decision of Co-ordinate Bench in HDFC Bank Ltd. Vs. Bhagwandas Auto Finance Limited & Anr., a Division Bench judgment dated 21st January, 2011 (Bhagwandas Auto Finance Ltd. & Ors. Vs. H.D.F.C. Bank Ltd.) affirming view expressed by the learned single Judge and a Full Bench Decision of the Delhi High Court in
# HDFC Bank Ltd. Vs. Satpal Singh Bakshi reported at 2013 (134) DRJ 566 (FB)
It is submitted that the right of a constituent to file a suit notwithstanding the RDB Act, 1993 is not affected by the RDB Act and in this regard the learned Senior Counsel has relied upon a decision of the Hon’ble Supreme Court in
# Nahar Industrial Enterprises Limited Vs. Hong Kong and Shanghai Banking Corporation reported at (2009) 8 SCC 646
# Indian Bank Vs. ABS Marine Products (P) Ltd. reported at (2006) 5 SCC 72
Mr. Mitra has referred to Paragraphs 105-111 of Nahar Industrial Enterprises Ltd. (supra) in support of the submission that the right of the debtor to maintain an action in the Civil Court is not barred notwithstanding the enactment of RDB Act, 1993. Similarly, the petitioner as constituent is also entitled to invoke the arbitration clause and seek remedy by arbitration.
It is submitted by Mr. Mitra, the learned Senior Counsel, that the arbitration proceeding has commenced prior to the institution of the proceeding by the bank before the Debt Recovery Tribunal. It is submitted that an application under Section 9 of the Arbitration and Conciliation Act, 1996 was filed on 19th August, 2015 being AP No.1364 of 2015. The bank filed an application for recovery of proceeding under Section 19 of the RDB Act, 1993 on 16th October, 2015. The notice for commencement of the arbitration proceeding under Section 21 was issued by the petitioner on 24th November, 2015. In between several orders were passed by this Court in the Section proceeding by and under which payments were made by the petitioner and accepted by the HDFC Bank. Mr. Mitra submits that the learned single Judge after receiving the benefit under several orders passed in the said proceeding, a failed attempt was made by the respondent to argue that the appearance of the respondent in the said proceeding is without breach to its right in respect of the claim carried to the Debts Recovery Tribunal. The learned Senior Counsel has submitted that the said objection did not find favour with the Co-ordinate Bench as the respondent submitted to the arbitration in unequivocally participating in proceeding before this Court on 1st September, 2015 and October 9, 2015 and particularly in enjoying the benefit of substantial payment under the consent order of September 1, 2015.
Per Contra, Mr. Ratnanko Banerjee, the learned Senior Counsel appearing on behalf of the Bank submits that although there may be an arbitration agreement between the parties but having regard to Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, 1993 and Section 34 of the Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002, (hereinafter referred to as the “SARFAESI Act”) such arbitration clause is invalid and unenforceable. It is submitted that in view of the aforesaid legislations, the bank and/or a financial institution can recover money and/or enforce its security interest only by invoking the provisions under the said two Acts and not by any other means, meaning thereby that no other remedy is available to the Bank except in taking recourse to the provisions of the said two Acts. Mr. Banerjee has laid much emphasis on Section 34 of the SARFAESI Act, 2002 in order to impress upon this Court that the phrase ‘any action taken or to be taken’ in the said Section debars any authority including an arbitrator to adjudicate upon the disputes if the nature of the dispute falls within the jurisdiction of the Debt Recovery Tribunal.
It is submitted that by reason of Sections 17, 18 and 34 of the RDB Act, 1993 read with Section 34of the SARFAESI Act, 2002, there has been a complete ouster jurisdiction to decide the dispute raised by the respondent and such dispute can only be decided by the Debt Recovery Tribunal constituted under the RDB Act. The aforementioned Sections are as follows:-
# RDB Act, 1993
# S. 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 a Tribunal under this Act.
# S. 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 articles 226 and 227 of the Constitution) in relation to the matters specified in section 17.
[Provided that any proceedings in relation to the recovery of debts due to any multi-State co-operative bank pending before the date of commencement of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012 under the Multi-State Co-operative Societies Act, 2002 (39 of 2002) shall be continued and nothing contained in this section shall, after such commencement, apply to such proceedings.]
# S. 34. Act to have over-riding effect
(1) Save as provided under subsection (2), the provisions of this Act shall have 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), theState 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 (Special Provisions) Act, 1985 (1 of 1986) and the Small Industries Development Bank of India Act, 1989 (39 of 1989)].”
# SRFAESI Act, 2002
# S. 34. Civil court not to have jurisdiction
No Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993).”
It is submitted that Section 18 of the RDB Act refers to “no court or other authority” which includes an arbitrator. The arbitrator is an authority within the meaning of Section 18 of the RDB Act and in this regard he has relied upon a decision of the Hon’ble Supreme Court in
# Union of India & Ors. Vs. Alok Kumar reported at (2010) 5 SCC 349
Mr. Banerjee has referred to the orders dated May 6, 2011 and December 14, 2015, passed in the Special Leave Petition against the order of the Division Bench in HDFC Bank Ltd. (supra) being SLP Nos.11097-11099/2011 (Bhagwandas Auto Finance Ltd. & Anr. VS. HDFC Bank Ltd.) and submits that by reason of the observations made by the Hon’ble Supreme Court while granting special leave that the matter involves a pure question of law and pendency of the proceeding would not come in the way of recovery of amounts in accordance with law, the efficacy and binding nature of the order passed by the Co-ordinate Bench as well as by the Hon’ble Division Bench loses is diluted and the matter is required to be considered afresh without being influenced by the observations in the said two judgments. The learned Senior Counsel has referred to a Division Bench Judgment of the Orissa High Court in
# Surya News Print & Papers Pvt. Ltd. Ghantasala & Ors. VS. Branch Manager, State Bank of India, Kalahandi reported at 2010 (3) R.A.J. 458 (Ori)
and submitted in the said decision, the Orissa High Court has held that the overriding effect of SARFAESI Act and RDB Act being special statutes prevail upon provisions of general statute like Arbitration and Conciliation Act.
An unreported decision of a Division of our Hon’ble Court in State Bank of India Vs. Index Suppliers Pvt. Ltd., APO 518 of 2014, GA 777 of 2015 with CS 312 of 2013, dated 1st April, 2015 is referred in order to show that if the disputes raised by the constituent is inextricably connected with the dispute raised by the financial institution and if a proceeding is pending before the RDB Act, 1993 at the instance of the financial institution, the Court can refer to the dispute of the constituent to the Debt Recovery Tribunal in order to avoid multiplicity of proceedings.
A Co-ordinate Bench decision in
# Sudha Khemka & Anr. Vs. Central Bank of India & Ors. reported at 2014 SCC OnLine Cal 7924: (2014) 3 Cal LJ 119: (2014) 4 ICC 704
has been referred to emphasize that by reason of the fact that the disputes raised were capable of being canvassed in course of proceedings under Section 19 of the RDB Act, the dispute shall not be referred to arbitration. The learned Senior Counsel has relied upon the said decision for the observation therein that Section 34 of the SARFAESI Act, 2002 demolishes at least two principles that were regarded as axiomatic in civil law. A plaint now may be rejected on the basis of a circumstance that may not be evident from the plaint and the partial rejection of a plaint may be possible to throw out such matters which are capable of adjudication by the Debts Recovery Tribunal under the 1993 Act and retain such matters that are not.
In support of the contention that RDB Act, 1993 and SARFAESI Act, 2002 are special statute in relation to the Arbitration and Conciliation Act, 1996, reference was made to a Single Bench decision of Bombay High Court in
# Kingfisher Airlines Limited Vs. Prithvi Malhotra reported at (2013) 1 AIR Bom R 255.
It is submitted that in the said decision it was held that the industrial dispute is rendered inarbitrabel and, accordingly, a party cannot invoke Section 8 of the Arbitration and Conciliation Act, 1996 even if they had agreed upon arbitration as the forum for settlement of disputes between them.
In reply, Mr. Abhrajit Mitra, the learned Senior Counsel has submitted that the pendency of the Special Leave Petition cannot completely wipe out the law laid down by the Single Judge Bench as well as the Division Bench inasmuch as the said order of the Hon’ble Supreme Court is only binding between the parties and cannot affect the present proceeding.
In this regard, the petitioner has relied upon the following decisions:-
# i) Jayantilal Hansraj Shah & Ors. Vs. Hemkunverben Dolatrial Dave and Ors. reported at MANU/GJ/0202/1994
# ii) Niranjan Chatterjee & Ors. Vs. State of West Bengal & Ors. reported at 2007 (3) CHN 683
# iii) Pijush Kanti Chowdhury Vs. State of West Bengal & Ors. reported at 2007(3) CHN 178
# iv) Viswapriya (India) Limited & Ors. Vs. Government of Tamil Nadu & Ors. reported at MANU/TN/2482/2015
# v) Him Privesh Environment Protection Society Vs. State of Himachal Pradesh & Ors. reported at MANU/HP/0687/2012.
It is submitted that the argument of the respondent that other authority under Section 18 of 1993 Act would not include arbitrator has been considered by the Co-ordinate Bench in HDFC Bank Ltd. and the said view was affirmed by the Hon’ble Division Bench. In view thereof, it is no more open for the petitioner to argue that the arbitrator would come within the purview of other authority.
The judgment of the Hon’ble Supreme Court in Union of India (supra) was distinguished by submitting that the Hon’ble Supreme Court was interpreting Rule 9(2) of the Railway Servants (Discipline and Appeal) Rules, 1968. The issue before the Hon’ble Supreme Court was whether or not under the relevant rules and provisions of the Act, the Railway Authorities have the jurisdiction to appoint a retired employee of the Department as “enquiry officer” within the ambit of Rule 9(2) of the Railway Servants (Discipline And Appeal) Rules, 1968 (for short referred to as “the Rules”). In the absence of any definition of the word “authority” the Hon’ble Supreme Court has referred to the dictionary meanings of the said word and has held that the authority should be understood on its plain language and without necessarily curtailing its scope. The “other authority” appearing in Rule 9(2) is intended to cover a vast field and there is no indication of the mind of the framers that the expression must be given a restricted or a narrow meaning. In the instant case, it is submitted that the arbitrator by reason of the 1996 Act, is conferred with various powers and it partakes the character of a judicial authority and having regard to the fact that it is a self-contained Code and the 1993 Act does not expressly exclude the provisions of the Arbitration andConciliation Act, 1996 as amended in 2015 the arbitration is not precluded from hearing the dispute. Moreover, by reason of the fact that similar issue was raised earlier and has been answered against the financial institution, it is no more open for the petitioner to argue that the other authority would include an arbitrator.
In dealing with Sudha Khemka (supra) it is submitted that the issue there is entirely different, as the learned Single Judge was not called upon to decide the issue involved in this proceeding. It is submitted that State Bank of India (supra) was not applicable in the instant case as the issue, there was whether a constituent’s claim could referred to Debts Recovery Tribunal so that both the claim and counter-claim herd by the DRT in order to avoid multiplicity of proceedings. The decision in Surya News Print (supra) of the Division Bench of the Orissa High Court is distinguished by submitting that issue before the Division Bench was whether there was an existence of an arbitration agreement.
In answering the said issue, the Division Bench observed that RDB Act, 1993 and SARFAESI Act, 2002 would prevail over the Arbitration and Conciliation Act, 1996. The decision was not rendered on consideration of the issues raised and argued in this proceeding and, accordingly, the said observations would have no binding effect in this proceeding.
On the basis of the aforesaid submissions it is required to be considered as to whether an arbitrator shall be appointed in terms of the arbitration agreement.
Similar point came up for consideration before a Co-ordinate Bench in HDFC Bank Ltd. (supra). Although the said decision was rendered in connection with an application under Section 9 of the Arbitration and Conciliation Act, 1996 but it could be seen from the said decision that a Co-ordinate Bench has considered same issues raised by the respondent in this proceeding opposing the prayer for appointment of an arbitrator.
In HDFC Bank Ltd. (supra), the learned single Judge had extensively dealt with various Sections of the 1993 Act and the Arbitration and Conciliation Act and, thereafter, has opined that a proceeding under Section 9 of the Arbitration and Conciliation Act, 1996 is not precluded simply because the bank or the financial institution has filed a proceeding for recovery of debts before the Debt Recovery Tribunal. The relevant observations of the learned trial Judge are:-
“Prior to the said Act of 1993, claims of banks and financial institutions now covered thereby were taken up by civil courts guided by considerations as to the pecuniary and territorial jurisdiction exercised by such civil courts. The said Act required claims of banks and financial institutions specified therein to be removed before the appropriate Debts Recovery Tribunal. Section 1(4) of the Act made the statute applicable to debts due of not less than Rs.10 lakh in value. Claims of banks and financial institutions lodged prior to the said Act (or the Ordinance that preceded it) coming into effect were not to continue in courts if the debts due therein were of value of at least Rs. 10 lakh and only subsequent claims for debts not exceeding Rs.10 lakh could be filed before regular civil courts. The respondents submit that where the jurisdiction of civil courts, both in respect of pending and future claims, has been taken away by the said Act of 1993 and the power to adjudicate the claims has been solely conferred on the tribunals named in the 1993 Act, no question arises of such claim being carried by way of an arbitral reference.
There is no merit in the respondents’ assertion on such score. Nothing in the 1993 Act precludes an arbitral reference being carried by a bank or a financial institution in respect of a matter that is capable of being brought as a claim under Section 19 of the 1993 Act. The exclusivity that is conferred on the Debts Recovery Tribunal, subject to the pecuniary floor-limit of Rs.10 lakh, is qua the civil court. Historically, in the early 1980s banks and financial institutions found it suffocating to operate as funds and secured assets remained blocked in protracted litigation, whether they were recovery proceedings filed in regular courts by them or genuine or frivolous actions instituted by the constituents. Banking business was then almost completely State-controlled and the worry was in public funds remaining entangled in time-consuming and ruinous court proceedings. There was a Tiwari Committee set up which recommended setting up independent tribunals for recovering debts of banks and financial institutions. The Narasimham Committee report thereafter culminated in first an ordinance and then the said Act of 1993.
The bar under Section 18 of the 1993 Act is not on a claimant, but on a “court or other authority.” The issue is as to whether an arbitrator would fall within the expression “other authority” used inSection 18. In administrative law, an authority is a body having jurisdiction in certain matters of a public nature. For a person or body to be an authority there must be an ability conferred by law to alter or ascertain, subject to the command of the relevant law, the rights, duties, liabilities or other legal relations, either of the authority or of other persons. The “authority” which is referred to in Section 18 has to be read in context and seen to imply the exercise of a sovereign power or duty. Section 28 of the Contract Act provides that agreements in restraint of legal proceedings would be void but carves out an exception in respect of arbitration agreements. The first limb ofSection 28(a) renders void every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals. In addition to an arbitration agreement, for which an exception has been specifically made in the section, a forum selection clause is also considered to be legal and valid, subject to the rider that a part of the cause of action must have arisen within the jurisdiction of the forum exclusively chosen.
The fundamental purpose of the 1993 Act was to remove claims of banks and financial institutions from the ordinary fora to specialised tribunals. The avowed purpose of the statute was to ensure the speedy disposal of claims of banks and financial institutions intended to be governed by it. The 1993 Act confers a benefit on banks and financial institutions in respect of the matters covered thereby. In principle, nothing in the Act prevents a bank or a financial institution to not avail of such advantage. The position may be viewed, not from the banks’ perspective but from the constituents’. A constituent may not bring an action before a Debts Recovery Tribunal unless there is a bank claim covered by the 1993 Act already pending in respect of the transaction. Now, if a constituent could bypass the jurisdiction of a civil court to receive its complaint in respect of a transaction with a bank by virtue of its agreement with the bank to refer the disputes to arbitration, there may not be any juridical impropriety for a bank to voluntarily give up its right to approach a Debts Recovery Tribunal pursuant to an arbitration agreement covering the same subject. If the jurisdiction of the Court can be ousted by consensus (actually, the jurisdiction is not ousted; the Court receiving the action holds the parties to their bargain by specifically enforcing the arbitration agreement), there is no reason to doubt that a similar pre-arranged consensual forum can be substituted for the Debts Recovery Tribunal. A party to an arbitration agreement may waive its right thereunder, but if the agreement is sought to be specifically enforced the judicial authority in seisin of the action would ordinarily enforce the agreement. There is no reason to suspect that if the petitioner bank carried a claim referable to arbitration to a Debts Recovery Tribunal, the respondents could not successfully enforce the arbitration agreement by way of an application under Section 8 of the Arbitration and Conciliation Act, 1996.
If the provisions of a statute have to be construed not as theorems of Euclid but the words need to be read with some imagination of the purpose which lie behind them, the 1993 Act cannot be understood to imply that an arbitration agreement covering the subject matter of a claim that can be carried to a Debts Recovery Tribunal cannot be enforced by reason of the bar under Section 18thereof. Such an interpretation would produce an undesirable result and would do violence to the intent and purpose of the statute. The 1993 Act has an aim, it seeks to obviate the malady of bank claims getting stuck in the perceived clogging in the Court system; it seeks to redress a supposed inadequacy (whether or not it has succeeded, is an entirely different matter) by creating a tribunal to take over a class of actions from civil courts and like fora. The bar under Section 18has, per force, to be restricted to civil courts and like authorities of public nature; and not extended to include a forum chosen by a bank and its constituent. The expression “other authority” has to be seen as a statutory forum which a bank or a financial institution had to approach, if the 1993 statute was not there. The petitioner has aptly relied on the following passage from Russel on Arbitration (20th ed.) quoted as part of submission in the judgment reported at
# Paramjeet Singh Patheja v. ICDS Ltd., (2006) 13 SCC 322
“Arbitration has at its centre the stone that builders of the courts rejected. You can choose your own judge.”
There is one final aspect that appears to be germane in the context but has not been referred to by the parties. There is an indication in the Act that an arbitral reference in respect of a matter capable of adjudication before a Debts Recovery Tribunal in terms of the said Act is not precluded thereby. Section 31(1) of the Act, which may have already become dead wood by now, provides for transfer of certain matters pending immediately before the establishment of a tribunal under the Act to such tribunal. It is necessary that the provision is minutely studied:
# 31. Transfer of pending cases
(1) Every suit or other proceeding pending before any court immediately before the date of establishment of a Tribunal under this Act, being a suit or proceeding the cause of action where on it is based is such that it would have been, if it had arisen after such establishment, within the jurisdiction of such Tribunal, shall stand transferred on that date to such Tribunal:
Provided that nothing in this sub-section shall apply to any appeal pending as aforesaid before any court.
If the bar under Section 18 of the said Act were to be understood to apply to arbitral proceedings covering the subject matter of a claim that can be adjudicated under the provisions of the Act, there would be no logic in matters being transferred only from Courts to the tribunals without the relevant provision referring to the transfer of arbitration references to the tribunals. The expression in Section 31(1) of the Act is “every suit or other proceeding pending before any court.” A reference before an arbitral tribunal is certainly not a suit or other proceeding pending before any Court. Apart from the common sense logic that an enactment for the benefit of a class of claimants may not be easily interpreted to bar such claimants from referring their claims to arbitration unless expressly excluded, Section 31(1) of the Act is significantly instructive in showing that the said Act does not rule out a claim capable of adjudication under the Act to be taken before an arbitral tribunal by the consensus of the relevant parties.
The respondents’ first contention 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 dissected. An action can either be before a Court or before any other authority. An action directly before a Court in relation to matters specified inSection 17 of the 1993 Act cannot be received. But if an arbitral tribunal is not covered by the expression “other authority”, a Court under Section 9 of the 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.
The said judgment was unsuccessfully carried to the Court of appeal. The appellate court affirmed the view expressed by the learned trial Judge. The appellate Court has taken note of a single Bench decision of the
# Kotak Mahindra Bank Ltd. Vs. Prem Power Construction Pvt. Ltd. Reported at 2008 (2) Arb LR 39
whereby the learned single Judge in arriving at a conclusion that in Section 18 of the RDB Act, 1993 does not indicate that parties are mainly agreed to choose a forum of adjudication.
A fairly recent decision of the Delhi High Court in HDFC Bank Ltd. (supra) is of some relevance. The Larger Bench presided over by the then Acting Chief Justice before His Lordship’s elevation to the Hon’ble Supreme Court considered the nature of the relief that a party can have in an arbitration proceeding, that is to say, the arbitrability of a dispute in Paragraph 34 of the said report which reads:-
“34. The term ‘arbitrability’ has different meanings in different contexts. The three facets of arbitrability, relating to the jurisdiction of the arbitral tribunal, are as under:
(i) Whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the arbitral tribunal) or whether they would exclusively fall within the domain of public for a (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.”
The observations on the following paragraphs, namely, paragraphs 12, 13 and 14 are of relevance which are reproduced hereunder:-
“12. With the creation of these alternate fora with all trappings of the Court and with the decision of the disputes which were hitherto dealt with by the civil courts, can it be said that parties are now totally precluded and prohibited of exercising their choice of domestic forum in the form of arbitral tribunal. Before we answer this question, we would like to refer to the judgment in the case of Booz Allen and Hamilton Inc. (supra). The Supreme Court in that case dealt with the issue of “arbitrability of disputes” and held that all disputes relating to „right in personam are considered to be amenable to arbitration and disputes relating to „right in rem are those disputes which are not arbitrable and require to be adjudicated by courts and public tribunals, being unsuited for private arbitration. Law in this respect is explained by the Supreme Court with utmost clarity, precision and erudition in the following terms:
“32. The nature and scope of issues arising for consideration in an application underSection 11 of the Act for appointment of arbitrators, are far narrower than those arising in an application under Section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application under Section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of ‘arbitrability’ or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under Section 34 of the Act, relying upon Sub-Section 2(b)(i) of that section.
33. But where the issue of ‘arbitrability’ arises in the context of an application under Section 8 of the Act in a pending suit, all aspects of arbitrability have to be decided by the court seized of the suit, and cannot be left to the decision of the Arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8of the Act, to refer the parties to arbitration, if the subject matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal.
34. The term ‘arbitrability’ has different meanings in different contexts. The three facets of arbitrability, relating to the jurisdiction of the arbitral tribunal, are as under:
(i) whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the arbitral tribunal) or whether they would exclusively fall within 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.
35. 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 the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of arbitral tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the Legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by a public fora (courts and Tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.
36. The well recognized examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.
37. It may be noticed that the cases referred to above relate to actions in rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself. (Vide: Black’s Law Dictionary).
38. 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.”
13. What is discernible from the above is that all disputes relating to right in personam are arbitrable and choice is given to the parties to choose this alternate forum. On the other hand, those relating to „right in rem having inherent public interest are not arbitrable and the parties choice to choose forum of arbitration is ousted. Examined in this line, it is obvious that a claim of money by the bank or financial institution against the borrower cannot be treated as „right in rem. Each claim involves adjudication whether, on the facts of that case, money is payable by the borrower to the bank/financial institution and if so to what extent. Each case is the decision on the facts of that case with no general ramifications. A judgment/decision of the Debt Recovery Tribunal deciding a particular claim can never be „right in rem and is a „right in personam as it decides the individual case/claim before it with no elements of any public interest.
14. Merely because there were huge NPAs and lot of monies to the banks and financial institutions was stuck up and the legislature in its wisdom decided to create a special forum to have expeditious disposal of these cases would not mean that decisions rendered by Debt Recovery Tribunal come in the realm of „right in rem. At the same time, we find from the judgment in Booz Allen and Hamilton Inc. (supra) that certain kinds of disputes for which tribunals are created are held to be non- arbitrable. Examples are Rent Control Tribunal under the Rent Control Act and Labour Court/Industrial Tribunal under the Industrial Disputes Act, 1947. Obviously, question that would immediately strike is as to what would be the yardstick to determine some kind of disputes to be decided by the tribunals are non-arbitrable whereas some other disputes become arbitrable. According to us, cases where a particular enactment creates special rights and obligations and gives special powers to the tribunals which are not with the civil courts, those disputes would be non-arbitrable.
It is a matter of common knowledge that Rent Control Act grants statutory protection to the tenants. Wherever provisions of Rent Control Act are applicable, it overrides the contract entered into between the parties. It is the rights created under the Act which prevail and those rights are not enforceable through civil courts but only through the tribunals which is given special jurisdiction not available with the civil courts. Likewise, Industrial Disputes Act, 1947 creates special rights in favour of the workman or employers and gives special powers to the industrial adjudicators/tribunals to even create rights which powers are not available to civil courts. Obviously such disputes cannot be decided by means of arbitral tribunals which are substitute of civil courts. On the other hand, in so far as tribunal ike Debt Recovery Tribunal is concerned, it is simply a replacement of civil court. There are no special rights created in favour of the banks or financial institutions. There are no special powers given to the Debt Recovery Tribunal except that the procedure for deciding the disputes is little different from that of CPC applicable to civil courts. Otherwise, the Debt Recovery Tribunal is supposed to apply the same law as applied by the civil courts in deciding the dispute coming before it and is enforcing contractual rights of the Banks. It is, therefore, only a shift of forum from civil court to the tribunal for speedy disposal. Therefore, applying the principle contained in Booz Allen and Hamilton Inc. (supra), we are of the view that the matters which come within the scope and jurisdiction of Debt Recovery Tribunal are arbitrable.”
The Arbitration & Conciliation Act, 1996 is an amalgam of the Arbitration Act, 1940, the Arbitration (Protocol & Convention) Act, 1937 and the Foreign Awards (Recognition &Enforcement) Act, 1961. It is a consolidating and amending statute. The object of the Act is to minimize the supervisory role of Court in relation to matters covered by arbitration. The provisions of Section 5 of the Act limit interference of judicial authorities in matters governed by Part-I of the Act and no judicial authority in terms of the said provisions can interfere except where so provided in Part-I of the said Act. By virtue of the said provision, all other statutes have been excluded from operation insofar as they relate to intervention by any judicial authority in matters covered by Sections 1 to 43 of the Act. This Act of 1996 has been held to be a self-contained code. In Fuerst Day Lawson (supra) it was held:-
“……It is, thus, to be seen that Arbitration Act, 1940 from its inception and right, through to 2004 (in P.S. Sathappan) was held to be a self- contained code. Now, if theArbitration Act, 1940 was held to be a self-contained code, on matters pertaining to arbitration, the Arbitration and Conciliation Act, 1996, which consolidates, amend and designs the law relating to arbitration to bring it, as much as possible, in harmony with the UNCITRAL Model must be held only to be more so. Once it is held that the Arbitration Act is a self-contained code and exhaustive, then it must also be held, using the lucid expression of Tulzapurkar, J., that it carries with it “a negative import that only such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to be done”. In other words, a letters patent appeal would be excluded by the application of one of the general principles that where the special Act sets out a self-contained code the applicability of the general law procedure would be impliedly excluded…..” (emphasis added)
# Girnar Traders Vs. State of Maharashtra reported at (2011) 3 SCC 1
it was held:-
79. The Expression ‘complete code in itself’ has not been defined precisely. However, it will be of some help to understand what the word ‘code’ means. It has been explained in P. Ramanatha Aiyar’s ‘The Law Lexicon’ (2nd Edn. 1997) as under:
‘A general collection or compilation of laws by public authority; a system of law; a systematic and complete body of law, on any subject such as Civil Procedure Code, Code of Criminal Procedure, Penal code. Etc.
…The code is broader in its scope, and more comprehensive in its purposes. Its general object is to embody, as near as practicable, all the law of the State, on any particular subject. It is more than evidentiary of the law; it is the law itself.’
80. ‘Complete’ further adds a degree of certainty to the code. It has to be a compilation of provisions which would comprehensively deal with various aspects of the purpose sought to be achieved by that law and its dependence on other legislations is either absent or at best is minimal. The provisions of the enactment in question should provide for a complete machinery to deal with various problems that may arise during its execution. Sufficient powers should be vested in the authority/forum created under the Act to ensure effectual and complete implementation of the Act. There should be complete and coherent scheme of the statutory provisions for attainment of the object and purpose of the Act. It essentially should also provide for adjudicatory scheme to deal with grievances/claims of the persons affected by enforcement of the provisions of the Act, preferably, including an appellate forum within the framework of the Act. In other words, the Act in itself should be a panacea to all facets arising from the implementation of the Act itself.
# Chloro Controls India Pvt. Ltd. Vs. Severn Trent Water Purification Inc. & Ors. reported at 2013 (1) SCC 641
while considering the scope of Section 45 of the Act, the Hon’ble Supreme Court reiterated that the 1996 Act is a complete code and provisions of the Act shall prevail over the Code of Civil Procedure.
The Full Bench of the Delhi High Court in
# National Highway Authority of India Vs. Oriental Structure Engineer Ltd. – Gammon India Ltd. (JV) reported at AIR 2013 Delhi 67
held that 1996 Act in effect displaces all such aspects of substantive and procedural law in respect of which there is an explicit or implied reference in the 1996 Act.
In Chloro Controls (supra) the Hon’ble Supreme Court noticed the following three characteristics of arbitrations, namely:-
1. Arbitration is consensual. It is based on the parties’ agreement;
2. Arbitration leads to a final and binding resolution of the dispute; and
3. Arbitration is regarded as substitute for the court litigation and results in the passing of a binding award.
Arbitration is not a common law right. It is a right created by statute. The rights and remedies are created by the statute. Arbitration is consensual. When the parties have voluntarily agreed to have their disputes resolved by Arbitration, it necessarily implies that they have consciously waived their right to have their disputes adjudicated by any other authority or by any other machinery.
The bank was in a superior bargaining position than the constituents.
The financial institution with its eyes wide open has agreed to include the arbitration clause in the loan document notwithstanding the fact that two legislations with regard to Recovery of Debts and Enforcement of Security Interest were in force and recourse to such acts were available to the bank, in case the account becoming non-performing assets. The bank, however, had voluntarily agreed to have the dispute resolved through arbitration. Section 34 of both the RDB Act does not prevent a constituent to file a suit for any breach of the loan agreement. A constituent is not required to wait until the bank files a recovery proceeding against the constituent before the Debt Recovery Tribunal.
Moreover, the amended provision of Section 19 of the Debt Recovery Act, namely Section 19(8)does not give an absolute power to a constituent to have the counter-claim adjudicated by the Tribunal as the subsequent sub-section, namely Section 19(11) of the RDB Act gives power to the Tribunal to pass an order for exclusion of the counter-claim.
The bank also cannot contend that the agreement containing the arbitration clause is unenforceable being vitiated by fraud or against public policy. Moreover, the bank has participated in the proceeding and has received substantial benefits under the orders passed from time to time in the Section 9 proceeding. The bank has acted in derogation of its rights and thereby waived its right to raise any objection at this stage. A faint attempt was made at the fag end of the said proceeding on 11th December, 2015 to contend that the appearance of the bank was without prejudice to its rights in respect of the claim carried to the DRT, after obtaining benefits of several orders directing payment between August 19, 2015 and December 11, 2015.
The submission that this Court in deciding an application for appointment of the arbitrator would consider the matter afresh not being persuaded and influenced by the decision in HDFC Bank Ltd. (supra) in view of the observation made by the Hon’ble Supreme Court while admitting the Special Leave Petition that the matter involves a pure question of law does not dilute the efficacy and the binding nature of the judgment by the Co-ordinate Bench and affirmed by the Division Bench. Merely because an appeal is pending before the Hon’ble Supreme Court, it cannot be said that the decision rendered by the Division Bench is no longer a good law or that it ceases to be a binding precedent. Unless a decision is set aside by the superior court, the said decision remains binding as a precedent though may not be binding upon the parties to the proceedings where the superior court has granted interim order. The said order is applicable only for the parties to the case and definitely not for others. Once a Co-ordinate Bench has taken a decision and affirmed by the Hon’ble Division Bench it is a binding precedent and the ratio of said decision is binding on this Court as well.
The order of the Division Bench is not wiped out from existence. Moreover, judicial propriety and discipline demands that we should respect the judgment of the Co-ordinate Bench till it is set-aside by the Apex Court. The Hon’ble Supreme Court in
# Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association, Madras reported at AIR 1992 SC 1439
has made a distinction between an order of stay of operation of the order impugned and an order quashing the order itself in the following words:-
“While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order. Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. This means that if an order passed by the appellate authority is quashed and the matter is remanded, the result would be that the appeal which had been disposed of by the said order of the appellate authority would be restored and it can be said to be pending before the appellate authority after the quashing of the order of the appellate authority. The same cannot be said with regard to an order staying the operation of the order of the appellate authority because in spite of the said order, the order the appellate authority continues to exist in law and so long as it exists, it cannot be said that the appeal which has been disposed of by the said order has not been disposed of and is still pending. We are, therefore, of the opinion that the passing of the interim order dated February 21, 1991 by the Delhi High Court staying the operation of the order of the appellate authority dated January 7, 1991 does not have the effect of reviving the appeal which had been dismissed by the appellate authority by its order dated January 7, 1991 and it cannot be said that after February 21, 1991, the said appeal stood revived and was pending before the appellate authority.”
Therefore, the effect of the order of stay in a pending appeal before the Apex Court does not amount to any declaration of law but is only binding upon the parties to the said proceedings and at the same time, such impugned order does not destroy the binding effect of the judgment of the Co-ordinate Bench of the Hon’ble Division Bench as a precedent because while admitting the SLP or granting any interim order, the Apex Court had no occasion to lay down any proposition of law inconsistent with the one declared by the Co-ordinate Bench and since affirmed by the Division Bench.
The argument that other authority would not include an arbitrator has also been considered by the Co-ordinate Bench in HDFC Bank Ltd. (supra) and since affirmed by the Division Bench. The decision in Union of India (supra) in the present context has no relevance as the Hon’ble Supreme Court was considering the question whether or not under the relevant Rules and provisions of the Act, the railway authorities have the jurisdiction to appoint a retired employee of the department as ‘enquiry officer’ within the ambit of Rule 9(2) of the Railway Servants (Discipline and Appeal) Rules, 1968. In that context, the Hon’ble Supreme Court in Paragraphs 32 to 37 referred to the various meaning of the word “authority” and thereafter in Paragraph 38 held that the authority should be understood on its plain language and without necessarily curtailing its scope.
It would be more appropriate to understand this expression and give it a meaning which should be in conformity with the context and purpose in which it has been used. The “other authority” appearing in Rule 9(2) is intended to cover a vast field and there is no indication of the mind of the framers that the expression must be given a restricted or a narrow meaning. The meaning of the word ‘authority’ was discussed in Union of India (supra) in Paragraphs 32 to 37 which reads:-
“32. Even the Indian Railway Act does not define the term “authority” though this expression has been used in conjunction with other words in the Rules as well as the Act. In absence of any specific definition or meaning we have to rely upon understanding of this expression in common parlance. In common parlance, the word `authority’ is understood to be, power to exercise and perform certain duties or functions in accordance with law. Authority may vest in an individual or a person by itself or even as a delegatee. It is the right to exercise power or permission to exercise power. Such permission or right could be vested in an individual or a body. It can also be in conferment of power by one person to another. This expression has been used differently in different statutes and can be given a different meaning or connotation depending upon the context in which it is used. The purpose and object of using such expression should be understood from the provisions of the relevant law and the purpose sought to be achieved.
33. The word `authority’ is derived from the Latin word auctoritas, meaning intention, advice, opinion, influence or command which originate from an auctor, indicating that authority originates from a master, leader or author, and essentially is imposed by superior upon inferior either by force of law (structural authority) or by force of argument (sapiential authority)
34. Farlex Free Dictionary explains the word `authority’ as follows:
“Authority n. permission, a right coupled with the power to do an act or order others to act. Often one person gives another authority to act, as an employer to an employee, a principal to an agent, a corporation to its officers, or governmental empowerment to perform certain functions. There are different types of authority including “apparent authority” when a principal gives an agent various signs of authority to make others believe he or she has authority, “express authority” or “limited authority” which spell out exactly what authority is granted (usually a written set of instructions), “implied authority” which flows from the position one holds, and “general authority” which is the broad power to act for another.
35. Oxford Dictionary explains the word as under:
“1. (a) The power to enforce laws, exact obedience, command, determine, or judge.
(b) One that is invested with this power, especially a government or body of government officials: land titles issued by the civil authority.
2. Power assigned to another; authorization: deputies were given authority to make arrests.”
36. Merrium Webster’s Law Dictionary, 1996 explains the word as under :
“Authority pl. – ties
1. an official decision of a court used esp. as a precedent.
2. (a) a power to act est. over others that derives from status, position, or office. Example: the authority of the President.
(b) the power to act that is officially or formally granted (as by statute, corporate bylaw, or court order).
3. * * *
4 (a) a government agency or corporation that administers a revenue- producing public enterprise. Example: the transit authority.
(b) a government agency or public office responsible for an area of regulation. Example: should apply for a permit to the permitting authority.”
37. In Law Lexicon, 2nd Edition, 1997 pg. 171, the word `authority’ has been explained and elucidated as follows:
“Authority. – * * * A person or persons, or a body, exercising power of command; generally in the plural: as, the civil and military authorities. Power or admitted right to command or to act, whether original or delegated: as, the authority of a prince over subjects and of parents over children; the authority of an agent to act for his principal. An authority is general when it extends to all acts, or all connected with a particular employment, and special when confirmed to a single act.
‘AUTHORITY, is nothing but a power to do something; it is sometimes given by word, and sometimes by writing; also it is by writ, warrant, commission, letter of attorney & c. and sometimes by law. The authority that is given must be to do a thing lawful: for if it be for the doing anything against law, as to beat a man, take away his goods, or disseise him of his lands this will not be a good authority to justify him that doth it.’ Authority (In contracts) the lawful delegation of power by one person to another.
Authority (In administrative law) is a body having jurisdiction in certain matters of a public nature.
Authority. Permission. Right to exercise powers; to implement and enforce laws; to exact obedience; to command; to judge. Control over; jurisdiction. Often synonymous with power. The power delegated by a principal to his agent. The lawful delegation of power by one person to another. Power of agent to affect legal relations of principal by acts done in accordance with principal’s manifestations of consent to agent.”
In this regard, reference may be made to the Advanced Law Lexicon by P.
Ramanatha Aiyar, 3rd Edition, in which the word “authority” is explained in the following words:-
“The expression ‘Authority’ in its etymological sense means a Body invested with power to command or give an ultimate decision, or enforce obedience or having a legal right to command and be obeyed. Webster’s Dictionary of the English Language, defined ‘authorities’ as ‘official bodies which control a particular department or activity, especially of the Government’. The expression ‘other authorities’ has been explained as ‘authorities entrusted with a power of issuing directions, disobedience of which is punishable as an offence’ or ‘bodies exercising legislative or executive functions of the State’ or ‘bodies which exercise part of the sovereign power or authority of the State and which have power to make rules and regulations and to administer or enforce them to the detriment of the citizens.’ In the absence of any statutory definition or judicial interpretation to the contrary, the normal etymological meaning of the expression, has to be accepted as the true and correct meaning.
‘Authority’ is clearly wide enough to include all bodies created by a statute on which powers are conferred to carry out governmental or quasi- governmental functions,
# Pradeep Kumar Biswas v. Indian Institute of Chemical Biology, (2002) 5 SCC 143
In Wharton’s Law Lexicon, 15th Edition, the word “authority” is explained as under:-
“Dictionary meaning of the word ‘authority’ is clearly wide enough to include all bodies’ created by a statute on which powers are conferred to carry out governmental or quasi-governmental functions,
# Som Prakash Rekki v. Union of India, (1981) 1 SCC 449, AIR 1981 SC 212
(229). (Constitution of India Art. 12) The meaning of the word ‘authority’ given in Webster’s Third New International Dictionary, which can be applicable is ‘a public administrative agency or corporation having quasi-governmental power and authorized to administer a revenue-producing public enterprise. This dictionary meaning of the word ‘authority’ is clearly wide enough to include all bodies created by a statute on which powers are conferred to carry out governmental or quasi- governmental functions,
# Rajasthan State Electricity Board v. Mohan Lal, AIR 1967 SC 1857 (1863): (1967) 3 SCR 377
(Constitution of India, Art. 12)”
In view of the aforesaid this Court fully adopts the interpretation given by the Co-ordinate Bench of “other authority” to exclude arbitration.
In Kingfisher Airlines Ltd. (supra) the issue was whether an industrial dispute or a dispute relating to enforcement of a right or an obligation created under the Industrial Disputes Act is arbitrable, that is, capable of being adjudicated by a private forum of an arbitrator. Considering the scheme of the Industrial Disputes Act and having regard to the fact that the said Act itself contemplates conciliation and other modes of dispute between the parties and is a special statute dealing with the industrial dispute it was held that the industrial dispute is rendered inarbitrable outside the Industrial Disputes Act.
The ratio of the decision can be culled out from the following paragraphs of the judgment:-
“14). The preamble of the I.D. Act, shows that it is enacted to provide a machinery and forum for the investigation of industrial disputes and for the settlement thereof and for the purposes analogous and incidental thereto. If one goes through the scheme of the I.D. Act, it becomes clear that it’s object is to improve the service conditions of the industrial workers and to bring about industrial peace which in turn can accelerate productive activity in the country resulting in its prosperity. In other words, the I.D. Act is a beneficial legislation, This aspect of the legislation has been noted by the Apex Court in its decision in Life Insurance Corporation of India V/s. D.J. Bahadur, 1980 Lab IC page 1218 as follows :
“The personality of the whole statute, ……has a welfare basis, it being a beneficial legislation which protects labour, promotes their contentment and regulates situations of crisis and tension where production may be imperiled by untenable strikes and blackmail lockouts. The mechanism of the Act is geared to conferment of regulated benefits to workmen and resolution, according to a sympathetic rule of law, of the conflicts, actual or potential, between managements and workmen. Its goal is amelioration of the conditions of workers, tempered by a practical sense of peaceful co- existence, to the benefit of both-not as in a neutral position, but with restraints on laissez faire and concern for the welfare of the weaker lot.”
15). The different authorities established for resolution of the disputes under the I.D. Act are,(i) Works Committee consisting of representatives of the employers and workmen engaged for the establishment in the establishment specified under Section 3, (ii) Conciliation Officers appointed by appropriate government (Section 4), (iii) Board of Conciliation appointed by the appropriate government (Section 5), (iv) Courts of enquiry constituted by the appropriate government (Section 6), (v) Labour Courts (Section 7) and (vi) Industrial Tribunals (Section 7A). Section 10provides for reference of disputes to the Board, Courts and Tribunals. The procedure for making a reference is to make an application, in the prescribed form to the appropriate Government. The reference could be of an existing industrial dispute or of the one which is apprehended. Section 13casts duty upon the conciliation officer to hold conciliation proceedings in case of the industrial dispute that exists or is apprehended. The duty is mandatory where the dispute relates to a public utility service. He is required to try to promote a settlement between the parties. If he succeeds in his attempt, he sends a report to the appropriate government alongwith memorandum of settlement signed by the parties to the dispute. In case of failure in promoting settlement, he submits a failure report setting forth the steps taken by him for ascertaining the facts and circumstances relating to the dispute and for bringing about the settlement. The report is also required to state the reasons on account of which, in his opinion, a settlement could not be arrived at. On receipt of the failure report from the conciliation officer, the appropriate government, if satisfied, makes a reference either to a Board or to the Labour Court or to the Industrial Tribunal or National Tribunal. Section 12(6) provides that report under Section 12shall be submitted within 14 days from the commencement of the conciliation proceedings which time can be extended by the agreement between the parties to the dispute. Similarly, Sections 14and 15 require the Court of Enquiry, the Labour Courts and the Industrial Tribunals to complete the proceedings before them within the specified time. Sections 16 to 19 provide for submission of the Award by Courts, it’s publication and it’s effect. Chapters V, VA, VB and VC covering Sections 22 to 25U, create rights and obligations and Chapter VI deals with penalties. Section 10A of the I.D. Act provides for voluntary reference of an industrial dispute to arbitration with a separate and specific procedure prescribed for it. The scheme of the I.D. Act thus indicates that, an otherwise private dispute between the employer and employee, has been placed on a different plane. The obvious reason therefor is that, the dispute and it’s resolution, impacts not just the concerned individual employee, but has a potential to impact the other employees and consequently the industry. Therefore, the emphasis under the I.D. Act is for resolution of dispute by conciliation.
17). There are two more distinctive features of the trial of industrial disputes by the fora provided under the I.D. Act. The Act empowers the adjudicating authorities under it, to give reliefs such as, reinstatement of wrongfully dismissed or discharged workmen, which may not be permissible in common law or for that matter not justified under the terms of the contract between the employer and the employee. Therefore, the types of the remedies that the arbitrator can award in the matters of industrial disputes is also required to be looked into, whether the remedies that can be awarded by him is limited by considerations of public policy and whether the remedies that can be awarded by him are same as the remedies that can be awarded by an Industrial Court. In case of an industrial dispute relating to dismissal or discharge of an employee, the arbitrator would be powerless in granting the relief of reinstatement, outside of I.D. Act.
18). The second distinctive feature, is the voluntary arbitration provided for under Section 10A of the I.D. Act. Section 10A provides, a detailed procedure on how the arbitration thereunder shall proceed, which includes mandatory forwarding of the arbitration to the appropriate government and the Conciliation Officer. It also includes, publication of notification thereafter so that the employers and workmen not parties to the arbitration agreement, but are concerned in the dispute, get an opportunity of presenting their case before the arbitrator. The Section does not entirely leave the matter in the hands of the parties to the arbitration agreement and the private fora of their choice. This shows that an industrial dispute is not treated solely as an individual dispute, but is always approached from the context of the larger picture of the industry as a whole. The status of the arbitrator appointed under Section 10A of the I.D. Act, is also different. To put it in the words of the learned Single Judge of this Court from Nagpur Bench in the unreported decision in Western Coalfield‘s case (supra), he falls “within the rainbow of statutory tribunals”. The relevant observations from the decision read as follows :
“The Act seeks to achieve social justice on the basis of collective bargaining. Collective bargaining is a technique by which dispute as to conditions of employment is resolved amicably by agreement rather than coercion. The dispute is settled peacefully and voluntarily although reluctantly between labour and management. The voluntary arbitration is a part of infrastructure of dispensation of justice in the industrial adjudication. The arbitrator thus falls within the rainbow of statutory tribunals.”
Further, Section 10A(5) of the I.D. Act, specifically excludes application of the Arbitration Act to the arbitrations under the Section.
20). It is thus seen that, adjudication of industrial disputes is reserved by the legislature exclusively for the authorities established under the I.D. Act, as a matter of public policy. Therefore, by necessary implication the same stands excluded from the purview of the private fora of the arbitrator. Consequently, the industrial dispute is rendered inarbitrable outside theI.D. Act. In such a case, the Court where the dispute is pending, must refuse to refer the parties to arbitration, under Section 8 of the Arbitration Act, even if they have agreed upon arbitration as the forum for settlement of disputes between them.”
It was, thus, held that the adjudication of the industrial disputes is reserved by the legislature exclusively for the authority established under the ID Act as a matter of public policy. It was on such considerations, the reference to arbitration was refused.
In Nahar Industrial (supra) the Hon’ble Supreme Court held that a debtor under the common law of contract and also in terms of a loan agreement may have an independent right to file a suit, however, a debtor cannot initiate proceeding before the Debt Recovery Tribunal. As long as no forum is created for enforcement of such right, a debtor is not precluded from filing the suit before the Civil Court. The jurisdiction of the Civil Court is plenary in nature. A Civil Court is entitled to decide the respective claims of the parties in a suit. Unless the same is ousted expressly by a statute or by necessary implication therefrom, civil courts will have jurisdiction to try all types of suits. In the said decision the Hon’ble Supreme Court has also considered the relevant paragraphs of Sections 17 and 18 of the RDB Act to the implication of said provisions of the jurisdiction of civil courts in Paragraphs 117, 118, 136 and 137 of the said report which reads:-
“117. The Act, although, was enacted for a specific purpose but having regard to the exclusion of jurisdiction expressly provided for in Sections 17 and 18 of the Act, it is difficult to hold that a civil court’s jurisdiction is completely ousted. Indisputably the banks and the financial institutions for the purpose of enforcement of their claim for a sum below Rs. 10 lakhs would have to file civil suits before the civil courts. It is only for the claims of the banks and the financial institutions above the aforementioned sum that they have to approach the Debt Recovery Tribunal. It is also without any cavil that the banks and the financial institutions, keeping in view the provisions ofSections 17 and 18 of the Act, are necessarily required to file their claim petitions before the Tribunal. The converse is not true. Debtors can file their claims of set off or counter-claims only when a claim application is filed and not otherwise. Even in a given situation the banks and/or the financial institutions can ask the Tribunal to pass an appropriate order for getting the claims of set-off or the counter claims, determined by a civil court. The Tribunal is not a high powered tribunal. It is a one man Tribunal. Unlike some Special Acts, as for example Andhra Pradesh Land Grabbing (Prohibition) Act, 1982 it does not contain a deeming provision that the Tribunal would be deemed to be a civil court.
118. The liabilities and rights of the parties have not been created under the Act. Only a new forum has been created. The banks and the financial institutions cannot approach the Tribunal unless the debt has become due. In such a contingency, indisputably a civil suit would lie. There is a possibility that the debtor may file preemptive suits and obtain orders of injunction, but the same alone, in our opinion, by itself cannot be held to be a ground to completely oust the jurisdiction of the civil court in the teeth of Section 9 of the Code. Recourse to the other provisions of the Code will have to be resorted to for redressal of his individual grievances.
136. The Plaintiff furthermore is the dominus litus. He may institute a suit having regard to the provisions contained in Sections 16 to 20 of the Code of Civil Procedure in any civil court within whose jurisdiction inter alia a cause of action arises. If the jurisdiction of the civil court is not barred or if he having regard to common law principle is entitled to maintain an action in two different forums, he may choose one of them. [See
# Rajasthan State Road Transport Corporation and Anr. v. Bal Mukund Bairwa, 2009 (2) SCALE 428
137. A debtor having regard to the provisions of the DRT Act would not be entitled to maintain an action before the Tribunal. If a suit is to be transferred from a civil court to a tribunal, he would loose some rights including the right to prefer an appeal before a higher court in terms of Sections 96 and 100 of the Code of Civil Procedure. Mr. Diwan, however, has strongly placed reliance upon
# Union of India and Another v. Delhi High Court Bar Association and Others [(2002) 4 SCC 275]
wherein it was observed that the tribunals have become an essential part of the judicial system in the country. Such observations were made keeping in view the provisions of Articles 323A and 323B of the Constitution of India. The logical extension of the said observations would not lead to a conclusion that the tribunals are either civil courts or this Court would be entitled to exercise its inherent power for transfer of a civil suit to a tribunal.”
In Indian Bank (supra) the Hon’ble Division Bench considered Sections 31, 17, 18 19(6) to (11) of the RDB Act, 1993 and held that it would be evident from Sections 17 and 18 of the RDB Act that civil courts jurisdiction is barred only in regard to the application filed by a bank or a financial institution for recovery of its debts. The jurisdiction of civil courts is not barred in regard to any suit filed by a borrower or any other person against a bank for any other relief.
There is no provision in the Act for transfer of suits and proceedings, except section 31, which relates to suit/proceeding by a bank or financial institution for recovery of a debt.
Sections 19(6) to (11) (as introduced by Act 1 of 2000), are merely enabling provisions. Significantly, Sections 17 and 18 have not been amended.
Jurisdiction has not been conferred on the Tribunal, even after amendment, to try independent suits or proceedings initiated by borrowers or others against banks/financial institutions, nor the jurisdiction of civil courts barred in regard to such suits or proceedings. The only change that had been made was to enable the defendants to claim set-off or make a counterclaim as provided in Sections 19(6) to 19(8) in applications already filed by the banks or financial institutions for recovery of the amounts due to them.
Making a counterclaim in the bank’s application before the Tribunal is not the only remedy, but an option available to the defendant borrower. He can also file a separate suit or proceeding before a civil court or other appropriate forum in respect of his claim against the bank and pursue the same. Even the bank, in whose application the counterclaim is made, has the option to apply to the Tribunal to exclude the counterclaim of the defendant while considering its application. A defendant in an application, having an independent claim against the bank, cannot be compelled to make his claim against the bank only by way of a counterclaim. Nor can his claim by way of independent suit in a court having jurisdiction, be transferred to a tribunal against his wishes.
The observations in
# United Bank of India Vs. Abhijit Tea Co. (P) Ltd., (2000) 7 SCC 357
that an independent suit of a defendant (in the Bank’s application) could be deemed to be a counterclaim and could be transferred to the Tribunal, will apply only if the following conditions were satisfied:-
(i) The subject-matter of the Bank’s suit, and the suit of the defendant against the Bank, should be inextricably connected in the sense that decision in one would affect the decision in the other.
(ii) Both parties (the plaintiff in the suit against the Bank and the Bank) should agree for the independent suit being considered as a counterclaim in the Bank’s application before the Tribunal, so that both could be heard and disposed of by the Tribunal.
The unreported Division Bench judgment of our Court in State Bank of India (supra) is required to be interpreted, read and understood on the basis of the ratio laid down in Indian Bank (supra).
If the petitioner instead of filing an application under Section 9 of the Arbitration and Conciliation Act, 1996 could have filed a suit prior to initiation of recovery proceeding which would be otherwise maintainable there is no reason to conclude that the application for appointment of arbitration in terms of the arbitration clause in the agreement would be barred. Moreover, the application under Section 9 was filed prior to the filing of the recovery proceeding and the respondent has participated in such proceeding and has received substantial benefits in terms of the orders passed in such proceeding.
In an application under Section 11 of the Arbitration and Conciliation Act, 1996, the Court is required to find out if there is existence of a valid arbitration clause. In view of a clear finding that there is an arbitration agreement between the parties and the party has approached the appropriate High Court, the application under Section 11 of the Arbitration and Conciliation Act is allowed.
Mr. S.P. Majumdar, Senior Advocate of Bar Library Club is appointed as an arbitrator at a consolidated remuneration of Rs.12 lacs to be shared by the parties in equal measure at the first instance subject to the direction as to costs as may be contained in the final Award. The Arbitrator is requested to conclude the reference within a period of twelve months of the statement of claim being lodged before him.
Urgent photostat copy of this judgment, if applied for, be supplied to the parties on an usual undertaking.