India Cements Capital Ltd. vs Auto Pins (India) Ltd.

R.K. Agrawal, A.C.J.

This Application has been filed u/s 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act), seeking appointment of a Sole Arbitrator to adjudicate upon the disputes/claims between the Petitioner and the Respondent in accordance with Clause 33 of the Lease Agreement entered into between them on 27.1.2001. According to the Petitioner, it is a reputed Public Limited Company engaged in the business of extending finance facilities as a Non-Banking Finance Company to prospective customers under various schemes such as Loans, Hire Purchase, etc. The Respondent approached the Petitioner for availing a lease finance facility and the Petitioner extended the said facility to the Respondent. The parties entered into a Lease Agreement bearing No. 7200018 on 27.1.2001 for finance of the purchase of Parabolic Leaf Springs Automation and Hydraulic Systems with Servo Control. The Respondent undertook to pay the monthly lease rentals to the Petitioner on the due dates mentioned in the Agreement. However, since the very inception of the Agreement, the Respondent had been irregular in making payments of the monthly rentals and had defaulted in payment thereof from the 42nd lease rental. Despite letters reminders and personal visits from the Petitioner''s side, the Respondent was not forthcoming with the outstanding dues. According to the Petitioner, as on 4.7.2008, a sum of Rs. 17,80,500/- was payable by the Respondent towards the lease rentals; a sum of Rs. 37,76,592/- was outstanding towards lease compensation charges levied at the contracted rate for belated payment/default made in payment of lease rentals; a sum of Rs. 56,500/- was due towards legal charges; a sum of Rs. 9,00,000/- was due towards the residual value and a sum of Rs. 18,87,953/- was due (towards interest on lease deposit, thus adding up to a total outstanding of Rs. 84,01,545/-. It is the case of the Petitioner that the Respondent is trying to evade payment of the dues under the pretext of becoming a Sick Company. Therefore, the Petitioner was constrained to refer the dispute to Arbitration, as contemplated by the Lease Agreement entered into between the parties. The Arbitration clause incorporated in the Lease Agreement contemplates any dispute/claim arising between the parties touching any matter covered by the Agreement to be referred to the Arbitration of two Arbitrators, one of which to be appointed by each party to the dispute in accordance with the Arbitration Act, 1940. Accordingly, the Petitioner issued a Notice on 4.7.2008, invoking the Arbitration clause. However, in view of the specific bar provided u/s 10 of the Act that the number of Arbitrators shall not be even number, the Arbitration clause in the present Lease Agreement could not be invoked and has become inoperative as it is not in consonance with Section 10 of the Act. Therefore, the Petitioner has approached this Court with the present Petition for the relief as stated above.

The Respondent has filed a Counter Statement wherein it has raised a preliminary issue of maintainability of the present Petition before this Court as it suffers from lack of territorial jurisdiction. According to the Respondent, the entire cause of action arose only at New Delhi, in that the Lease Agreement, coupled with the demand Promissory Note, the Agreements of Lease and Guarantee, were all executed on 27.1.2001 at New Delhi, and hence, the present Petition ought not be entertained by the Court at Chennai. The allegation of irregular payments right from the inception of the lease is denied by the Respondent. However, thereafter, based on the audited Balance Sheet dated 31.12.2003, the Respondent-Company had come to be declared a Sick Company by the Board of Industrial Finance and Reconstruction (''BIFR'' for short) in Case No. 194 of 2004 and by order dated 29.8.2008, the BIFR had appointed Canara Bank as the operating agency to work out a scheme of revival of the Respondent-Company. The BIFR, while framing necessary schemes for rehabilitation of the Respondent-Company, has also made provisions for settlement of the unsecured loan availed by the Respondent from the Petitioner and another Company, to the tune of Rs. 27.11 lakhs, under a O.T.S. According to the Respondent, the Petitioner has full knowledge of these developments and yet it is insisting on the appointment of an Arbitrator to adjudicate the disputes. It is submitted that any claim that the Petitioner makes would be subject to the orders of the BIFR and the Operating Agency and therefore, the right course to be adopted by the Petitioner-Company would be to approach the Operating Agency for settlement of its dues, subject to the approval from the BIFR. According to the Respondent, the Petitioner was aware of the fact that the Respondent had been declared as Sick Company as early as on 31.12.2003, but yet chose to issue the statutory Notice for appointment of Arbitrator, without any sanction from the BIFR or intimation to the Operating Agency. It is also stated that the Petitioner had earlier filed O.A. No. 4440 of 2010 u/s 9 of the Act seeking attachment of the Respondent-Company''s property pending initiation of the Arbitral proceedings. A detailed Counter Affidavit had been filed in that Application setting out that the cause of action has been concocted to Suit the needs of the Petitioner. The Said Application was got dismissed as withdrawn on 9.3.2011. The Respondent has denied the outstanding claimed by the Petitioner and according to it, the alleged claims regarding legal charges, residual value and actual interest charged are beyond the scope of the Agreement. According to the Respondent-Company, since it had already been declared as Sick Company by the BIFR, the question of evading payments as alleged by the Petitioner would not arise, nor would there be a need to refer the matter to Arbitration. The Respondent has reiterated the settled position of law that when a Company is before the BIFR, any question of payment can arise only with the concurrence and sanction of the BIFR as well as the Operating Agency.

Learned Counsel for the Petitioner submitted that the Lease Agreement entered into between the parties provided for resolution of disputes through Arbitration. Clause 33 of the Agreement provides for Arbitration and Clause 34 of the Agreement provides for the exclusive jurisdiction of Courts at Chennai in respect of all proceedings, which implies that it excludes the jurisdiction of Courts at other places, including the Courts at Delhi, as contended by he Respondent. According to the learned Counsel, the Respondent not having denied execution of the Agreement, is bound by the aforesaid clauses contained therein. It is submitted that even in the Counter Affidavit filed in O.A. No. 4440 of 2010, which was filed before this Court u/s 9 of the Act, the Respondent had nowhere raised the issue of jurisdiction and had submitted itself to the jurisdiction of this Court. Therefore, the present stand as regards jurisdiction is only an after-thought, just to evade the liability. Learned Counsel also submitted that Section 120 of the Code of Civil Procedure, 1908 specifically excludes the provisions of Section 20, C.P.C. as far as Chartered High Courts are concerned and under Clause 12 of the Letters Patent, this Court has the jurisdiction to entertain the present Petition, since the Petitioner''s registered office is located in Chennai and the cheques issued by the Respondent-Company wire presented by the Petitioner to its bankers at Chennai and part of the cause of action had arisen in Chennai. Learned Counsel submits that when the Arbitration clause in the agreement specifies a particular forum for adjudication of the disputes, then the same should normally be given effect to. In support of his submissions, he has relied on the decisions rendered in Jindal Vijayanagar Steel (JSW Steel Ltd.) Vs. Jindal Praxair Oxygen Company Ltd., Rajasthan State Electricity Board Vs. Universal Petro Chemicals Ltd., and Shree Baidyanath Ayurved Bhawan Pvt. Ltd. Vs. Praveen Bhatia and Others, and A.V.M. Sales Corporation Vs. Anuradha Chemicals Pvt. Ltd., .

As far as the proceedings before the BIFR are concerned, learned Counsel submitted that even within two years of the executing the Lease Agreement, the Respondent had moved the BIFR for declaring the Company as a sick unit. The Petitioner submitted its claim before the BIFR in the year 2008 and as there had been no adjudication thereof, it was compelled to approach this Court invoking the provisions of the Act. According to the learned Counsel, the Petitioner is aware of Section 22(1) of the Sick Industrial Companies Act, 1956 (''SICA'' for short), which bars filing of Suits and proceedings of coercive nature against Companies declared as Sick Units. However, an Application filed u/s 11(6) of the Arbitration Act is not one of a coercive nature and is more in the nature of an adjudicatory process; in fact, the claim his not even been adjudicated and therefore, the present Petition is maintainable. He has relied on the decisions rendered in San-A Tradubg Co. Ltd. v. I.C. Textiles Ltd., 2006 (3) CTC 59 (SC); Morgan Securities and Credit Pvt. Ltd. Vs. Modi Rubber Ltd., ; and Jay Engineering Works Ltd. Vs. Industry Facilitation Council and Another, in support of his submissions.

Per contra, learned Counsel for the Respondent submitted that the Lease Agreement, the demand Promissory Note, the Agreement of Lease as well as the agreement of guarantee were all executed at New Delhi and there is no dispute with regard to that. It is the stand of the Petitioner that only a part of the cause of action had arisen at Chennai, on the ground of its registered office being situated at Chennai and the cheques issued by the Respondent having been presented by the Petitioner to its bankers at Chennai. Even in the impleading Petition filed in the proceedings before the BIFR, the Petitioner had never raised the issue of jurisdiction, nor had it sought sanction from the BIFR for getting its claim adjudicated by way of arbitration. According to the learned Counsel, the Petitioner had fully subjected itself to the proceedings before the BIFR and had even sought to withdraw the Application filed by it before this Court u/s 9 of the Act for attachment of the properties of the Respondent-Company pending disposal of Arbitral proceedings on the only ground that the properties, the attachment of which is sought, is subject matter of BIFR proceedings. The Respondent, in its Counter Affidavit filed in the proceedings u/s 9 of the Act, had raised the issue relating to cause of action having arisen before this Court, but it was not decided as the Petitioner got that Application dismissed as withdrawn. Having subjected itself to the BIFR proceedings, the Petitioner cannot now seek adjudication of its claims by trying to enforce the Arbitration clause contained in the Agreement. According to the learned Counsel, in view of the revival scheme framed by the BIFR, the Respondent intends to settle the legitimate dues of the Petitioner under O.T.S. and therefore, it would not be fair on the part of the Petitioner to insist on adjudication of the dispute by way of Arbitration. In support of his submissions, he has placed reliance on the decisions rendered by the Hon''ble Supreme Court and this Court in Aligarh Muslim University v. Vinay Engineering Enterprises Ltd., (1994) 4 SCC 710 and Motila Oswal Securities Ltd. Vs. D. Renuka and Another, respectively.

I have heard the learned Counsel for the Petitioner as well as the Respondent and perused the materials available on record. I have also gone through the judgments cited on both sides.

Taking up the plea raised by the learned Counsel for the Respondent that the BIFR had already framed a scheme for rehabilitation of the Respondent-Company, in which the claim of the Petitioner has also been taken care of and therefore, the present Petition filed by the Petitioner invoking the provisions of the Act is not maintainable, I find that the Respondent had approached the BIFR in the year 2004 and a reference case No. 194 of 2004 was registered by the BIFR. The Petitioner had made an Application seeking impleadment on 24.7.2008 and also submitted its claim. The BIFR, vide order dated 29.8.2008, had appointed Canara Bank as the Operating Agency to work out a scheme for revival of the Respondent-Company. The BIFR accordingly formulated a scheme on 26.7.2010. In Para 12.4 of the Sanctioned Scheme, the BIFR provided as follows:

12.4 Other Loans - Indusind Bank Ltd. and ICCFL:

As at 31st March, 2009, APIL had other loans (Hire Purchase) from Indusind Bank Ltd. and India Cement Capital & Finance Ltd. (ICCFL) to the tune of Rs. 45.19 lac. The APIL intends to settle these dues under OTS route to the tune of Rs. 27.11 lac. Since it is not a secured loan, the Company has treated the same as unsecured loan.

As rightly pointed out by the learned Counsel for the Petitioner, the framing of the scheme for rehabilitation by the BIFR would not come in the way of the Petitioner in invoking the jurisdiction under the Act.

The Hon''ble Supreme Court in the case of San-A Tradubg Co. Ltd. v. I.C. Textiles Ltd., 2006 (3) CTC 59 (SC) (supra), has held that a proceeding in arbitration is neither a Suit under sub-section (2) of Section 22 of the SICA nor the proceedings thereunder and, therefore, there is no prohibition u/s 22 of SICA to take up the Arbitration proceedings to adjudicate the liability of the parties to the Arbitration proceedings. A similar view has been taken by the Hon''ble Supreme Court in the case of Jay Engineering Works Ltd. Vs. Industry Facilitation Council and Another, ) and Morgan Securities and Credit Pvt. Ltd. Vs. Modi Rubber Ltd., . In view of the principles laid down by the Hon''ble Supreme Court in the aforementioned cases, the objection raised by the learned Counsel for the Respondent, that the Petition for enforcing the Arbitration clause and seeking appointment of an Arbitrator is not maintainable in view of the fact that the proceedings under the SICA are pending before the BIFR, cannot be accepted.

Learned Counsel for the Respondent had also raised the issue regarding jurisdiction of this Court to entertain an Application filed by the Petitioner u/s 11 of the Act. Admittedly, the Agreement for lease was executed between the parties on 27.1.2001 at New Delhi. The demand Promissory Note, the Agreement of Lease and the Agreement of Guarantee all were executed at New Delhi. The payments were made by the Respondent by way of cheque, which according to the Petitioner, had been presented to its bankers at Chennai. It is also not in dispute that in the Lease Agreement, Clause 34 provided for Courts in the city of Chennai to have exclusive jurisdiction in respect of any Suit touching any matter, claims or disputes arising out of or in any way relating to the Agreement. The question is, if no cause of action had arisen at Chennai, whether this clause in the Lease Agreement would confer any jurisdiction in the Courts at Chennai or not.

Learned Counsel for the Petitioner had placed reliance on Section 120 of the CPC which specifically provides that the provisions of Sections 16, 17 & 20, C.P.C. will not apply to the High Courts in exercise of its Original Civil Jurisdiction. According to the learned Counsel, as the Madras High Court is a Chartered High Court, in view of Clause 12 of the Letters Patent, it has ordinary Civil Original Jurisdiction, the principles laid down in Sections 16, 17 & 20, C.P.C. regarding filing of Suits depending upon the cause of action specified therein would not apply. In the case of Jindal Vijayanagar Steel (JSW Steel Ltd.) Vs. Jindal Praxair Oxygen Company Ltd., ) relied upon by the learned Counsel for the Petitioner, the Hon''ble Supreme Court has held that neither the CPC nor its principles can be made applicable to the Letters Patent qua Sections 16, 17 & 20, C.P.C.

Clause 12 of the Letters Patent of the Madras High Court reads as follows:

Original jurisdiction as to Suits.-- And We do further ordain that the said High Court of Judicature at Madras, in exercise of its ordinary Original Civil Jurisdiction, shall be empowered to receive, try and determine Suits of every description if, in the case of Suits for land or other immovable property, such land or property shall be situated, or, in all other cases, if the cause of action shall have arisen, either wholly, or, in case the leave of the Court shall have been first obtained, in part, within the local limits of the Ordinary Original jurisdiction of the said High Court: or if the Defendants at the time of the commencement of the Suit shall dwell or carry on business or personally work for gain, within such limits; except that the said High Court shall not have such Original jurisdiction in cases falling within the jurisdiction of the Small Cause at Madras, in which the debt or damage, or value of the property sued for does not exceed hundred rupees.

From a reading of the aforesaid clause, it is clear that the Madras High Court has jurisdiction to try Suits of every description in cases where--

(a) a Suit for land or other immovable property where such land or property is situated either wholly or in part within the local limits of the Ordinary Original jurisdiction of the High Court; or

(b) the Defendant at the time of the commencement of the Suit, dwells or carries on business within such limits; or

(c) the Defendant at the time of the commencement of the Suit, worked for gain within such limits.

In the present case, I find that except for presenting the cheques issued by the Respondent to its Bankers at Chennai, the Petitioner had not claimed that any property of the Respondent is situated, whether in full or in part, within the jurisdiction of this Court, nor it is the case of the Petitioner that the Respondent at the time of commencement of the Suit, had carried on business or had personally worked for gain within the limits of the Ordinary Original jurisdiction of this Court. Presenting of cheques issued by the Respondent, by the Petitioner with its bankers at Chennai is a far-fetched and untenable attempt to make out a case of cause of action having arisen at Chennai. That being the position, I am of the considered opinion that this Court would not have jurisdiction to entertain the present Petition on the strength of Clause 12 of the Letters Patent.

In the case of Rajasthan State Electricity Board Vs. Universal Petro Chemicals Ltd., ; Shree Baidyanath Ayurved Bhawan Pvt. Ltd. Vs. Praveen Bhatia and Others, and A.V.M. Sales Corporation Vs. Anuradha Chemicals Pvt. Ltd., the Hon''ble Supreme Court has held that if a cause of action has arisen in which two or more Courts had jurisdiction to try a Suit, in that scenario, it is open to the parties to choose Courts at one place, to the exclusion of all other places, as the Court having jurisdiction to try such Suits or matters incidental thereto. But where Courts only at one place have the jurisdiction to try the Suits and other proceedings, in that case, it is not open to the parties to confer jurisdiction to a particular Court in another Place. Applying the principles laid down by the Hon''ble Supreme Court in the aforesaid cases to the facts of the present case, I find that no cause of action had arisen to the Petitioner within the Ordinary Original jurisdiction of this Court and therefore, Clause 34 of the Lease Agreement would not enure to the benefit of the Petitioner.

In the case of Aligarh Muslim University v. Vinay Engineering Enterprises Ltd., (1994) 4 SCC 710 the Hon''ble Supreme Court had held thus:

The contracts in question were executed at Aligarh, the construction work was to be carried out at Aligarh, even the contracts provided that in the event of dispute the Aligarh Court alone will have jurisdiction. The Arbitrator was from Aligarh and was to function there. Merely because the Respondent was a Calcutta-based firm, the High Court of Calcutta seems to have exercised jurisdiction where it had none by adopting a queer line of reasoning. We are constrained to say that this is a case of abuse of jurisdiction and we feel that the Respondent deliberately moved the Calcutta High Court ignoring the fact that no part of the cause of action had arisen within the jurisdiction of that Court. It clearly shows that the litigation filed in the Calcutta High Court was thoroughly unsustainable.

Similarly, in the case of Motila Oswal Securities Ltd. Vs. D. Renuka and Another, , a Single Judge of this Court had held that jurisdiction cannot be conferred on a Court within whose jurisdiction no part of cause of action regarding the dispute had ever arisen.

Respectfully following the principles laid down by the Apex Court in the aforementioned cases, I am of the considered opinion that as no cause of action had arisen within the Ordinary Original jurisdiction of this Court at Chennai, the Agreement between the parties contained in Clause 34 thereof, specifying the right of the parties to approach only the Courts at Chennai would not confer any jurisdiction to this Court.

The submission of the learned Counsel for the Petitioner, that in view of the fact that the Respondent having submitted to the jurisdiction of this Court in the proceedings initiated u/s 9 of the Act by the Petitioner, viz. O.A. No. 4440 of 2010 and having not raised the objection regarding jurisdiction therein, in view of the provisions of Section 42 of the Act, the Respondent is stopped from raising such a plea at this stage also cannot be sustained as from the records, I find that in the Counter Affidavit filed by S. Rajbir Singh, Managing Director of the Respondent-Company in O.A. No. 4440 of 2010, a specific plea was taken in paragraph 11 that the cause of action has been concocted to Suit the needs of the Applicant (Petitioner herein). The Petitioner got that Application, filed u/s 9 of the Act, dismissed as withdrawn on 9.3.2011. Thus, the question of cause of action remained undecided by this Court, even though a plea to that effect had been raised by the Respondent in the Counter Affidavit filed therein. Thus, Section 42 of the Act would not come to the rescue of the Petitioner. In view of the foregoing discussions, I am of the considered opinion that the present Petition is not maintainable as no cause of action had ever arisen within the Ordinary Original Civil Jurisdiction of this Court. The Original Petition is, therefore, dismissed.