M/S SUNDARAM FINANCE LIMITED AND ANR. Vs. T. THANKAM

 

Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Civil), 2079 of 2015, Judgment Date: Feb 20, 2015

Once an application is duly filed in terms of Section 8 of  The  Arbitration
and Conciliation Act, 1996 (hereinafter referred to  as  'Arbitration  Act')
before the civil court, what should be the approach of  the  court,  is  the
short question arising for consideration in this case.
Once there is an agreement between the parties  to  refer  the  disputes  or
differences arising out of the agreement to arbitration, and in case  either
party, ignoring the terms of the agreement, approaches the civil  court  and
the other party, in terms of the Section 8 of  the  Arbitration  Act,  moves
the court  for  referring  the  parties  to  arbitration  before  the  first
statement on the  substance  of  the  dispute  is  filed,  in  view  of  the
peremptory language of Section 8 of the Arbitration Act,  it  is  obligatory
for the  court  to  refer  the  parties  to  arbitration  in  terms  of  the
agreement, as held by this Court in                 P. Anand Gajapathi  Raju
and others v. P.V.G. Raju (Dead) and others[1].
Once an application in due compliance of Section 8 of  the  Arbitration  Act
is filed, the approach of the civil court should be not to see  whether  the
court has jurisdiction. It should be to see  whether  its  jurisdiction  has
been ousted. There is a lot of difference between the two  approaches.  Once
it is brought to the notice of the court  that  its  jurisdiction  has  been
taken away in terms of the procedure prescribed under a special statue,  the
civil court should first see whether there  is  ouster  of  jurisdiction  in
terms or compliance of the procedure under the special statute. The  general
law should yield to the special law - generalia  specialibus  non  derogant.
In such a situation, the approach shall not  be  to  see  whether  there  is
still  jurisdiction  in  the  civil  court  under  the  general  law.   Such
approaches would only delay the resolution of disputes  and  complicate  the
redressal of grievance and of course unnecessarily increase the pendency  in
the court.

The order dated 21.06.2010  passed  by  the  trial  court  and  order  dated
17.03.2014 passed by the High Court, are  set  aside.  

                        IN THE SUPREME COURT OF INDIA

                       CIVIL  APPELLATE  JURISDICTION

                 CIVIL APPEAL NO.      2079         OF 2015
                  (Arising from S.L.P. (C) No. 20140/2014)


M/s. Sundaram Finance Limited and another               ... Appellant (s)


                                   Versus

T. Thankam                                             ... Respondent (s)


                               J U D G M E N T


KURIAN, J.:

Leave granted.

Once an application is duly filed in terms of Section 8 of  The  Arbitration
and Conciliation Act, 1996 (hereinafter referred to  as  'Arbitration  Act')
before the civil court, what should be the approach of  the  court,  is  the
short question arising for consideration in this case.

In a suit for injunction filed by the respondent, the  prayer  made  was  to
restrain the first and second defendant  institutions  and  their  men  from
illegally taking away from the possession of plaintiff or her  employee,  or
interfering with the use and enjoyment of  ambassador or causing  damage  to
the car bearing registration  number  KL-11-AA-1473  in  the  ownership  and
possession of the plaintiff by way of a decree of injunction.  The  car  was
purchased on loan granted by the appellant.

Duly complying with the procedure under Section 8 of  the  Arbitration  Act,
the appellant filed an application bringing  to  the  notice  of  the  trial
court that in view of the agreement  for  arbitration  between  the  parties
regarding resolution of the disputes, the court did  not  have  jurisdiction
to try the case and the parties were  to  be  directed  to  the  process  of
arbitration in terms of the agreement.  The  trial  court,  by  order  dated
21.06.2010, declined the relief holding that:

"... Even though  clause  22  of  the  Ext.A1  agreement  provides  that  of
disputes should be  referred  to  arbitration  this  will  not  prevent  the
plaintiff from approaching this court especially when one of the parties  to
the agreement are trying to commit an act opposed to public policy  and  per
se illegal. The arbitration clause in the agreement cannot  be  put  forward
as a shield when one of the parties to the agreement commit an  act  opposed
to public policy. In such circumstances the plaintiff  can  seek  protection
under the common civil law. In this matter what the respondent alleged  that
the petitioners are trying to take forcible possession of the vehicle  which
is being run by her. Her relief sought for in the  plaint  is  only  against
the illegal acts of the defendants. The apprehended acts  of  the  plaintiff
are against the public policy and per se illegal  and  hence  this  suit  is
maintainable. ..."



 The appellant pursued the matter before the High  Court.  By  the  impugned
order dated 17.03.2014, it was held as follows:

"... Going by Section 8 of the Arbitration and Conciliation  Act,  I  am  of
the opinion that mere inclusion of an arbitration clause  in  the  agreement
does not bar or cause to oust the jurisdiction of the civil  court  provided
under Section 9 of the Code of Civil Procedure. The above  view  is  further
supported by Section 5 of the Arbitration and Conciliation Act,  which  says
that "in  the  matters  governed  by  first  part  of  the  Arbitration  and
Conciliation Act, no judicial authority  shall  intervene  except  where  so
provided in the first part". It means that jurisdiction of the  Civil  Court
is not completely ousted by Section 8 of the  Arbitration  and  Conciliation
Act. Section 5 of the Arbitration and Conciliation  Act  does  not  bar  the
exercise of general power  of  the  civil  court  to  grant  interim  relief
including specific injunctive relief under Order XXXIX of the  CPC  and  the
Specific Relif Act. ..."


 Aggrieved, the appeal.

Heard the learned counsel appearing for the appellants.  None  appeared  for
the respondent.

Two clauses of Annexure-P1-Loan Agreement between the parties,  executed  on
29.06.1997, are relevant for the consideration of the disputes. Clause  14.6
reads as follows:

"14.6.       Notwithstanding  anything  contained  in  this  Agreement,  the
Lender shall be entitled to reposess the  hypothecated  Asset,  whether  the
entire Loan Amount has been recalled  or  not,  whenever,  in  the  absolute
discretion of the Lender, there is likelihood of the dues of the Lender  not
being paid by the borrower and or/the Asset is likely to be  transferred  by
the Borrower to defeat the security and or payment of the due any  units  of
the Lender."


Clause 22(a), as to the extent relevant, reads as follows:

"22.  (a) All disputes,  differences  of  any  claim  arising  out  of  this
Agreement whether during its subsistence or thereafter shall be  settled  by
arbitration in  accordance  with  the  provisions  of  the  Arbitration  and
Conciliation Act, 1996, or any statutory amendments  thereof  and  shall  be
referred to the sole Arbitration of an Arbitrator nominated by the  Managing
Director/Joint Managing Director of the Lender. The award given by  such  an
Arbitrator shall be final and binding on the Borrower to the agreement."


Once there is an agreement between the parties  to  refer  the  disputes  or
differences arising out of the agreement to arbitration, and in case  either
party, ignoring the terms of the agreement, approaches the civil  court  and
the other party, in terms of the Section 8 of  the  Arbitration  Act,  moves
the court  for  referring  the  parties  to  arbitration  before  the  first
statement on the  substance  of  the  dispute  is  filed,  in  view  of  the
peremptory language of Section 8 of the Arbitration Act,  it  is  obligatory
for the  court  to  refer  the  parties  to  arbitration  in  terms  of  the
agreement, as held by this Court in                 P. Anand Gajapathi  Raju
and others v. P.V.G. Raju (Dead) and others[1].


The position  was  further  explained  in  Hindustan  Petroleum  Corporation
Limited v. Pinkcity Midway Petroleums[2]. To quote:

"14. This Court in the case of P. Anand Gajapathi Raju v.  P.V.G.  Raju  has
held that the language of Section 8 is peremptory in nature.  Therefore,  in
cases where  there  is  an  arbitration  clause  in  the  agreement,  it  is
obligatory for the court to refer the parties to  arbitration  in  terms  of
their arbitration agreement  and  nothing  remains  to  be  decided  in  the
original action after such an  application  is  made  except  to  refer  the
dispute to an arbitrator. Therefore, it is clear that if, as contended by  a
party in an agreement between the parties before the civil court,  there  is
a clause for arbitration, it is mandatory for the civil court to  refer  the
dispute to an arbitrator. In the  instant  case  the  existence  [pic]of  an
arbitral clause in the Agreement is accepted by both the parties as also  by
the  courts  below  but  the  applicability  thereof  is  disputed  by   the
respondent and the said dispute is accepted by the courts below. Be that  as
it may, at the cost of repetition, we may again state that the existence  of
the arbitration clause is admitted. If that be so, in view of the  mandatory
language of Section 8 of the Act, the courts below ought  to  have  referred
the dispute to arbitration."


In Branch Manager, Magma Leasing and Finance Limited and another v.  Potluri
Madhvilata and another[3], the position has been restated  holding  that  no
option is left to the court, once the pre-requisite conditions of Section  8
are fully satisfied.

The attempt of the trial court and the approach made by the  high  court  in
bifurcating the cause of action,  is  fallacious.  It  would  only  lead  to
delaying and complicating the process. The said issue is also  no  more  res
integra. In Sukanya Holdings (P) Limited v. Jayesh Pandya and another[4]  at
paragraphs-16 and 17, it was held as follows:

"16. The next question which requires consideration is - even  if  there  is
no provision for partly referring the dispute to arbitration,  whether  such
a course is possible under Section 8 of the Act. In our view,  it  would  be
difficult to give an interpretation to Section 8 under which bifurcation  of
the cause of action, that is to say, the subject-matter of the  suit  or  in
some cases bifurcation of the suit between parties who are  parties  to  the
arbitration agreement and others is possible. This would be  laying  down  a
totally new procedure not contemplated under the Act. If bifurcation of  the
subject-matter of a suit was contemplated, the legislature would  have  used
appropriate language to permit  such  a  course.  Since  there  is  no  such
indication in the language, it follows  that  bifurcation  of  the  subject-
matter of an action brought before a judicial authority is not allowed.

17. Secondly, such bifurcation of suit in two parts, one to  be  decided  by
the Arbitral Tribunal and the other to be decided by the civil  court  would
inevitably delay the proceedings. The whole purpose of  speedy  disposal  of
dispute and decreasing the cost of litigation would be  frustrated  by  such
procedure. It would also increase the cost of litigation and  harassment  to
the parties and on occasions there is possibility of  conflicting  judgments
and orders by two different forums."

In Orix Auto Finance (India) Limited  v.  Jagmander  Singh  and  another[5],
referring  to  public  policy,  this  Court  has  taken  the  view  that  if
agreements permit the financer to take possession of the finances  vehicles,
there is no legal impediment on such  possession  being  taken,  unless  the
contract is held to be unconscionable or opposed to public policy".

Once an application in due compliance of Section 8 of  the  Arbitration  Act
is filed, the approach of the civil court should be not to see  whether  the
court has jurisdiction. It should be to see  whether  its  jurisdiction  has
been ousted. There is a lot of difference between the two  approaches.  Once
it is brought to the notice of the court  that  its  jurisdiction  has  been
taken away in terms of the procedure prescribed under a special statue,  the
civil court should first see whether there  is  ouster  of  jurisdiction  in
terms or compliance of the procedure under the special statute. The  general
law should yield to the special law - generalia  specialibus  non  derogant.
In such a situation, the approach shall not  be  to  see  whether  there  is
still  jurisdiction  in  the  civil  court  under  the  general  law.   Such
approaches would only delay the resolution of disputes  and  complicate  the
redressal of grievance and of course unnecessarily increase the pendency  in
the court.

The order dated 21.06.2010  passed  by  the  trial  court  and  order  dated
17.03.2014 passed by the High Court, are  set  aside.  The  trial  court  is
directed to pass fresh orders on the application  filed  by  the  appellant-
defendant under Section 8 of the Arbitration Act. The needful shall be  done
within a period of two months from the date of receipt of this order.

The appeal is disposed of as above. There shall be no order as to costs.

                                         ..........................J.
                                                (M.Y. EQBAL)


                                         ..........................J.
                                             (KURIAN JOSEPH)
New Delhi;
February 20, 2015.







ITEM NO.1B              COURT NO.11               SECTION XIA
[for judgment]

               S U P R E M E  C O U R T  O F  I N D I A
                       RECORD OF PROCEEDINGS

C.A. No. 2079 of 2015 @ Petition(s) for Special Leave to Appeal (C)  No(s).
 20140/2014

(Arising out of impugned final judgment and order  dated  17/03/2014  in  WP
No. 21076/2010 passed by the High Court of Kerala At Ernakulam)

M/S SUNDARAM FINANCE LIMITED AND ANR.            Petitioner(s)

                                VERSUS

T. THANKAM                                       Respondent(s)

Date : 20/02/2015 This appeal was called on for judgment today.

For Petitioner(s)      Mr. Balaji Srinivasan,Adv.

For Respondent(s)

            Hon'ble Mr. Justice Kurian Joseph  pronounced  the  judgment  of
the Bench comprising Hon'ble Mr. Justice M.Y. Eqbal and His Lordship.
            Leave granted.
            Appeal is disposed of in terms of  signed  reportable  judgment.
No costs.

(INDU POKHRIYAL)                           (PARDEEP KUMAR)
  COURT MASTER                                    AR-cum-PS
      [SIGNED REPORTABLE JUDGMENT IS PLACED ON THE FILE]
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[1]    (2000) 4 SCC 539
[2]    (2003) 6 SCC 503
[3]    (2009) 10 SCC 103
[4]    (2003) 5 SCC 531
[5]    (2006) 2 SCC 598

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                                                                  REPORTABLE

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