Citicorp Finance (India) Ltd. vs Manoj Ray & Anr.

A very interesting point of law has arisen in these four cases. All of them

are being disposed of by this common judgement.

Section 9 of the Arbitration and Conciliation Act, 1996, before its

amendment on 23rd October, 2015, empowered the court to make inter

alia an order for preservation, interim custody and sale of any property

which was the subject matter of the arbitration agreement, to pass an

order of interim injunction, to appoint a receiver and so on. After

amendment of this Act, once the arbitral tribunal has been constituted, it

has the power to pass these orders. If for any reason the court finds that

the order of the tribunal will not be efficacious, it might entertain the

application. Any party to an arbitration might apply to the court and now

the tribunal under Section 9 . This application can be made before the

arbitral proceedings, during it and after an award has been passed. It

has to be made before the execution proceedings under Section 36 of the

Act.

In each of these four matters an award has been passed by the learned

arbitrator. Till now the respondents are using the equipments which are

hypothecated by them to the petitioners, by agreement. The respondents

have failed and neglected to pay the instalments payable under the

respective loan cum hypothecation agreements. By the awards in

question the respondents have been directed to pay the sums due under

the agreement together with interest accrued thereon and penalty subject

to the petitioners'' charge over the equipments. Either the respondents

have filed applications to set aside the awards under Section 34 of the

said Act or the time to make the same has not expired.

Now, the problem is this: The petitioners want to invoke Section 9 of the

said Act, by appointment of receivers by this court to take possession of

the equipments, sell them and hold the proceeds to the credit of the

proceedings, during the pendency of the Section 34 applications.

Learned Counsel for the petitioners Mr. Swatarup Banerjee and Mr. Ali

submit that the equipments in the hands of the respondents are fast

depreciating. If the petitioners ultimately succeed in the applications filed

by the respondents to challenge the awards their interest will be

seriously affected by the deterioration of the equipments and loss of their

market value.

On the other hand Mr. Saha for the respondents submits that since

applications to set aside the awards are under consideration by the court

or the time to make them is not over, under Section 36 no order under

Section 9 can be passed as that would tantamount to enforcement of the

award.

FACTS:

What happened in the case (AP 438 of 2017) is this. The equipment in

question is a Hyundai R 210-7 equipment bought on loan obtained by

the respondents from the petitioners and hypothecated to the latter. The

agreement between the parties was made on 17th July, 2013 by which

the petitioner lent and advanced Rs. 39,10,000/- to the respondent No.

The respondent No. 2 stood as the guarantor. The respondents

according to the petitioner defaulted in the payment of instalments. On

18th September, 2015 the petitioner invoked the arbitration clause under

Section 21 of the Arbitration and Conciliation Act, 1996. Meanwhile, the

respondents filed a title suit (T.S. 1592 of 2015) before the learned City

Civil Court at Calcutta, and obtained an order of injunction on 21st

November, 2015 restraining the petitioner from taking possession of the

equipments. The petitioner subsequently filed a Section 8 application

before the said court. The said Section 8 application could only be

disposed of 28th April, 2017 vacating the order of injunction, much after

the award was passed in favour of the petitioner on 15th April, 2016.

Therefore, it is quite evident that during the pendency of the Section 8

application the petitioner could not obtain an order appointing a receiver

under Section 9 to take possession of the equipment.

This application under Section 9 of the Arbitration and Conciliation Act,

1996 (AP 438 of 2017) has been filed by the petitioner within the period

of three months from the date of serve of the award provided by the said

Act to the respondents to make an application to set aside the award.

We all know, by the operation of Section 36 of the said Act the award

cannot be enforced during the time allowed to the award debtor to make

a setting aside application.

The facts of the case AP 439 of 2017 are more or less similar.

Keeping the petitioner in the dark the respondent filed a title suit (T.S.

1591 of 2015) before the VI bench of the learned City Civil Court,

Calcutta asking for a declaration regarding the ownership of the vehicle

and for an injunction restraining the petitioner from "disturbing the

peaceful possession of the plaintiff". On 21st November, 2015 an interim

order of injunction was passed by the court restraining the petitioner

from disturbing the possession of the respondents over the vehicle in

question. The respondents did not appear in the arbitral proceedings.

The learned arbitrator proceeded to make and publish the award on 15th

April, 2016. Thereafter the respondents have filed an application to set

aside the arbitral award, in this court (AP 619 of 2016). In the meanwhile

on an application under Section 8 of the Arbitration and Conciliation Act

taken out by the petitioner, on 26th April, 2017, the learned City Civil

Court vacated its interim order and allowed the Section 8 application

made by the petitioner.

It appears from the submissions of learned Counsel for the parties,

though full facts have not been told to the court that the respondents

have filed another Section 9 application in the learned City Civil Court

which is still pending. The petitioner has filed a Section 42 application.

The award in AP 439 of 2017 is as follows:

"Having regard to the aforementioned observations I therefore make the

following award:-

a) I Award and declare that the claimant namely M/S. Citicorp Finance (I)

Ltd. has the first charge over of the said motor vehicle being model

HYUNDAI- R-80 bearing Machine Serial No. N101D00510, with all

accessories thereon and entitled to possession thereof.

b) I Award and direct that sum of Rs. 1403313/- be paid to the said

claimant by the said Respondents.

c) I Award and direct the Respondents to pay interest on Rs. 1403313/- @

30% p.a. from the date of reference till publication of award. The

claimant is further entitled for interest on Award @ 18% per annum

from the date of Award till realization.

d) I Award the claimed to seize and sell the said vehicle and adjust the

sale proceeds towards its claim only after vacating of interim order

dated 21/11/2015.

e) I Award and direct that a sum of Rs. 7,000/- be paid to the claimant by

the Respondents being the amount of cost referred herein.

f) Respondents are jointly and/or severally liable for the above payments.

In compliance of the provisions of section 31 (4) of the said Act, it is

hereby record that the Arbitration Proceedings were held at 10, Old

Post Officer Street, Ground Floor, Room No.-7, Kolkata-700001. The

arbitral proceedings commenced on 16/11/2015.

Dated this 15th Day of April-2016"

The other awards are similar.

In the third case (AP 503 of 2017) the arbitrator made and published the

award on 19th June, 2017. It seems that the learned arbitrator prior to

making the award was approached under Section 17 of the said Act by

the petitioner for interim reliefs. A custodian was appointed but he could

not take possession of the asset in question. As is evident the

respondents in this case have time to file the setting aside application.

In this case also orders have been sought from this court by the

petitioner to appoint a receiver to take possession of the equipment and

to sell it in pro tanto satisfaction of their claim.

The fourth case is (A.P. 539 of 2017). In this case an application under

Section 9 of the Arbitration and Conciliation Act (AP 1059 of 2013) had

been filed in this court. It was disposed of 23rd February, 2017 with the

asset lying in the custody of the petitioner. The arbitral proceeding before

the learned arbitrator was commenced and resulted in an award dated

30th March, 2015. The respondents have challenged this award by filing

an application under Section 34 of the said Act (AP 1360 of 2015). That

application is still pending.

THE LAW:

It is an absolutely admitted position that in all the four cases the

arbitral proceedings commenced before coming into force of the

Amendment Act, 2015. Hence, filing of an application for setting aside of

the award under Section 34 of the said Act or availability of time to file it

operated as an automatic stay of execution of the award. In those

circumstances, how far can the hands of the court be stretched under

Section 9 of the said Act, post publication of the award?

Now, the petitioners want receivers to take possession of the assets, sell

them and hold the sale proceeds. Does that amount to enforcement or

partial enforcement of the awards? More importantly how are the

respective rights and obligations of the parties under Sections 9 and 36

of the Act to be determined and balanced?

Section 36 of the said Act prior to its amendment is set out below:

"36.Enforcement--Where the time for making an application to set aside

the arbitral award under section 34 has expired, or such application

having been made, it has been refused, the award shall be enforced under

the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it

were a decree of the court."

This section forbade enforcement of the award pending determination of

the Section 34 application. Enforcement is synonymous with execution of

the award. Take the awards in these cases. They are for payment of sums

of money. The equipments are charged securing payment of the awarded

sums. This means that in execution the equipments will be sold and the

proceeds of the sale applied towards payment of the awarded debt. If

there is any deficit, it would be met by further execution against the

assets of the award debtor

Suppose, the award debtor decides not to take out an application to set

aside the award. In that case, on the expiry of the time prescribed under

Section 34 (3) to file an application to set aside the award, the award

holder has the option of either proceeding under Section 9 or in

execution. If the remedy under Section 9 appears to be more efficacious

the award holder may avail of this remedy for interim execution, before

levying the formal execution. In that case there is no incompatibility

between Section 9 and Section 36 of the said Act.

Now, if the setting aside application is allowed, the award debtor will get

back the equipment without the requirement of making any payment. If

the award cannot be enforced under Section 36, then the court ordinarily

does not have the power to attach and sell the equipments. If the

equipments are attached and sold, they cannot be given back to the

judgement debtor, in the event of his success in the Section 34

application. Yet, Section 9 of the said act permits inter alia sale of the

subject matter of arbitration after the award is made.

How are the two sections to be reconciled?

A division bench of our court presided over by Mr. Justice Sanjib

Banerjee has opined in Srei Equipment Finance Ltd. v. Mohan Jha &

Anr decided on 16th January, 2017 that for preservation of the subject

matter or if the subject matter is perishable it might be sold under

Section 9, pending execution.

Two decisions of the Bombay High Court, Delta Construction Systems

Ltd., Hyderabad v. Narmada Cement Company Ltd., Mumbai

reported in 2002 (1) MhLj 684 and M/s. Kotak Mahindra Prime Ltd.

v. Amin Tharani decided on 7th August, 2009 cited by the petitioners,

express the opinion that after passing of the award but before it is

enforced the court can pass orders for preservation and sale of the

property which is the subject matter of the arbitration. Whether these

remedies ordered by the court after the award under Section 9 of the said

Act comes into collision with a bar to execution under Section 36 of the

said Act are not discussed in these judgements. The division bench of the

Gujarat High Court in Essar Oil Limited v. United India Insurance

Company Ltd . reported in (2015) 3 GLH 28 cited by the respondents is

on a completely different footing. It says that the power of taking custody

of the subject matter of the arbitration and directing its sale by the court

post publication of the award should be made if the principles of Order

38 Rule 5 of the Code of Civil Procedure were satisfied. I am afraid their

lordships of the division bench were not properly assisted by learned

counsel for the parties. The arbitration is to be taken as a suit. The

award is to be taken as a decree. Orders under Section 9 of the said Act

post award are akin to orders passed by the court post decree. Therefore,

it is like passing an order post decree Order 38 Rule 5 makes it explicit

that it is only available "at any stage of the suit." Hence, in my opinion it

is not available after the decree passed or the award is made. Therefore,

borrowing its principles to pass orders in Section 9 does not appear to be

legally correct.

In order to support the said provision in Section 9, and to apply it so that

it does not come into conflict with Section 36, one has to look towards

the law of restitution embodied in Section 144 of the Code of Civil

Procedure. The principle is that if while the execution is pending the

assets of the judgement debtor are sold under orders of court it is not in

a position to give them back to the judgement debtor in the event of his

success in the appeal or revision. However, the court has the power to

restitute the judgement debtor to the same position he was at the time of

passing the sale order. Section 144 is inserted below:

"144. Application for restitution.- (1) Where and in so far as a decree

or an order is varied or reversed in any appeal, revision or other

proceeding or is set aside or modified ii any suit instituted for the purpose,

the court which passed the decree or order shall, on the application of any

party entitled to any benefit by way of restitution or otherwise, cause such

restitution to be made as will, so far as may be, place the parties in the

position which they would have occupied but for such decree or order or

such part thereof as has been varied, reversed, set aside or modified and,

for this purpose, the court may make any orders, including orders for the

refund of costs and for the payment of interest, damages, compensation

and mesne profits, which are property consequential on such variation;

reversal, setting aside or modification of the decree or order.

Explanation: For the purposes of sub-section (1), the expression "court

which passed the decree or order" shall be deemed to include,--

(a) where the decree or order has been varied or reversed in exercise of

appellate or revisional jurisdiction, the court of first instance;

(b) where the decree or order has been set aside by a separate suit, the

court of first instance which passed such decree or order;

(c) Where the court of first instance has ceased to exist or has ceased to

have jurisdiction to execute it, the court which, if the suit wherein the

decree or order was passed were instituted at the time of making the

application for restitution under this section, would have jurisdiction to try

such suit.

(2) No suit shall be instituted for the purpose of obtaining any restitution or

other relief which could be obtained by application under sub-section (1)."

Mr. Justice M.N. Venkatachaliah who was then the Chief Justice,

remarked in Mrs. Kavita Trehan and another v. Balsara Hygiene

Products Ltd . reported in AIR 1995 SC 441 that restitution was a

remedy for unjust enrichment. The principles were to be found in equity

and at law.

Mr. Justice R.C. Lahoti summed up the principle of restitution in South

Eastern Coalfields Ltd. V. State of M.P. and others reported in AIR

2003 SC 4482 as follows:

"24. In our opinion, the principle of restitution takes care of this

submission. The word ''restitution'' in its etymological sense means

restoring to a party on the modification, variation or reversal of a decree or

order, what has been lost to him in execution or decree or order or the court

or in direct consequence of a decree or order ( See Zafar Khan & Ors. v.

Board of Revenue, U.P. & Ors . AIR 1985 SC 39)., . In law, the term

''restitution'' is used in three senses; (i) return or restoration of some specific

thing to its rightful owner or status; (ii) compensation for benefits derived

from a wrong done to another; (iii) compensation or reparation for the loss

caused to another. (See Black''s Law Dictionary, Seventh Edition, p.1315).

The Law of Contracts by John D. Calamari & Joseph M. Perillo has been

quoted by Black to say that ''restitution'' is an ambiguous term, sometimes

referring to the disgorging of something which has been taken and at times

referring to compensation for injury done. "Often, the result in either

meaning of the term would be the same. ..... Unjust impoverishment as

well as unjust enrichment is a ground for restitution. If the defendant is

guilty of a non-tortuous misrepresentation, the measure of recovery is not

rigid but, as in other cases of restitution, such factors as relative fault, the

agreed upon risks, and the fairness of alternative risk allocations not

agreed upon and not attributable to the fault of either party need to be

weighed." The principle of restitution has been statutorily recognized in

Section 144 of the Code of Civil Procedure, 1908. Section 144 of the C.P.C.

speaks not only of a decree being varied, reversed, set aside or modified

but also includes an order on par with a decree. The scope of the provision

is wide enough so as to include therein almost all the kinds of variation,

reversal, setting aside or modification of a decree or order. The interim

order passed by the Court merges into a final decision. The validity of an

interim order, passed in favour of a party, stands reversed in the event of

final decision going against the party successful at the interim stage.

Section 144 of the C.P.C. is not the fountain source of restitution; it is

rather a statutory recognition of a pre-existing rule of justice, equity and

fair play. That is why it is often held that even away from Section 144 the

Court has inherent jurisdiction to order restitution so as to do complete

justice between the parties."

Under Section 144, the trial court effects restitution. Let us view a

Section 34 proceeding as an appeal or a revision application. If the

judgement debtor succeeds in the setting aside application, he cannot go

back to the arbitrator at the trial court because the arbitral proceedings

have been terminated by publication of the award. [See Section 32 of the

Arbitration and Conciliation Act, 1996].

Mr. Justice Prabir Kumar Samanta of this court in Parul Mukherjee v.

Gouri Biswas and others reported in 2001 AIHC 4322 held that the

executing court had the power under Section 151 of the Code to order

restitution in the interest of justice.

If the asset which is the subject matter of the suit is converted into

money by sale, the court has the power to order restitution in whatever

manner it deems fit and proper, to achieve a just and equitable result.

Therefore even if the Section 34 application succeeds and pending it the

subject matter of the property has been sold, the arbitrator, cannot be

approached like a court of the first instance by the judgement debtor for

restitution under Section 144 of the Code. The only remedy open to him

is to the apply for restitution before the executing court.

Therefore, if one applies the principle of restitution then there is no

incompatibility between Section 36 and Section 9 so far it relates to sale

of the subject matter of the arbitration after the award and pending the

setting aside application. Suppose, the judgement debtor succeeds in the

setting aside application and the subject matter of the arbitration, the

equipment has been sold in a Section 9 application during its pendency

and the sale consideration is held by the court. The court is in a position

to restitute the judgement debtor to the same position he was at the time

of the sale of the equipment.

Hence, in my judgement, the court has the power in a Section 9

application to order sale of the equipment in question or the subject

matter of arbitration pending determination of the Section 34

application, on terms and conditions that would enable it to fully

restitute the award debtor to the position he was at the time of its sale on

his succeeding to get the award set aside in a Section 34 application. It is

important that the sale proceeds or any benefit under the award do not

go to the award holder during the pendency of the Section 34 application

and that it is held by the court or a Receiver appointed by it.

The subject equipments/vehicles are depreciating assets and fast

deteriorating.

Hence, I, appoint Mr. Rajiv Lal, Advocate, 4 K.S. Roy Road, Kolkata-700

001 and Mr. S.K. Mishra, Advocate, Bar Association Room No. 4 as Joint

Recei vers in AP 438 of 2017 Mr. Partha Sarathi Basu, Advocate Bar

Association Room No. 2 and Mr. Chittaranjan Ghosh, Advocate Bar

Association Room No. 4 as Joint Receivers in AP 439 of 2017, Ms.

Saswati Ghosh Sinha, Advocate andMr. Suman Chatterjee, Advocate Bar

Association Room No. 13 as Joint Receivers in AP 503 of 2017 Mr. Amlan

Jyoti Sengupta, Advocate and Mr. Rahul Sengupta, Advocate, Bar

Library Club as Joint Receivers in AP 539 of 2017 at a remuneration of

800 GMs each to the paid by the respective petitioners to take possession

of the equipments/vehicles where possession has not been taken and

effect sale of the equipments in question upon notice to the award

debtors by public auction or private treaty, subject to confirmation by

this court. They may act jointly or severally. The joint receivers will invite

offers and incorporate them along with their comments in reports to be

filed by them in court by 31st August, 2017. Copies of the reports will be

circulated to the parties. Any Receiver appointed earlier stands

discharged. Thereafter, the respective petitioners will take out

applications for confirmation of sale.

Certified photocopy of this Judgment and order, if applied for, be

supplied to the parties upon compliance with all requisite formalities.