M/S Kogta Financial India Ltd. vs Jayesh S/o Kishorlal Dawda

By this Civil Revision Application filed under

Section 115 of the Code of Civil Procedure, 1908 (for short,

the Code), the applicants who are defendant Nos.3 and 4 in

the suit filed by the non-applicant Nos.1 and 2 herein have

challenged the order passed by the trial Court below Exhibit-

30 dismissing the application filed by the applicants herein

under provisions of Order VII Rule 11 of the Code.

The facts in brief are that according to the non-

applicant Nos.1 and 2 they had purchased a four wheeler

from the defendant no.1 through its Agency which was

defendant no.2. For said purpose financial assistance was

obtained by the non-applicant nos.1 and 2 and certain post

dated cheques came to be issued by them. According to the

plaintiffs, they were cheated in the aforesaid transaction and

hence had filed criminal proceedings in that regard.

Thereafter the plaintiffs received a notice from the Court at

Madras which was an application under Section 9 of the

Arbitration and Conciliation Act, 1996 (for short, the said

Act). The plaintiffs also received certain other documents

which included the loan agreement and documents

containing arbitration clause. The plaintiffs, therefore, filed

suit for declaration that the alleged loan agreement contained

various terms and conditions that were not actually agreed

upon and hence, those terms were not binding upon the

plaintiffs. A further declaration was sought that appointment

of the sole arbitrator pursuant to the alleged agreement was

without their consent. Certain other reliefs were also sought.

The applicants herein who are defendant nos.3

and 4 filed application below Exhibit-30 under provisions of

Order VII Rule 11 (d) of the Code seeking dismissal of the

suit as it was barred under provisions of the said Act. Reply

was filed to the aforesaid application and the trial Court by

the impugned order dated 17-12-2011 rejected that

application. Hence, said order has been challenged in this

Civil Revision Application.

Shri M. R. Joharapurkar, learned Counsel for the

applicant submitted that in view of provisions of Section 8

and 16 of the said Act coupled with the fact that clause 22 of

the loan agreement contained an arbitration clause, the Civil

Court has no jurisdiction to entertain the suit. According to

the pleadings in the plaint it was the case of the plaintiffs that

their signatures were obtained without making them aware

of the actual contents of the loan agreement. Even if it is

assumed that this stand of the original plaintiffs was correct,

the agreement would be voidable and even in that case, the

civil court had no jurisdiction to entertain the suit. Such plea

could be raised before the arbitrator and same could be

decided as it was permissible to do so under Section 16 of the

said Act. In that regard learned Counsel placed reliance on

the decisions Hindustan Petroleum Corpn. Ltd. vs. Pinkcity

Midway Petroleums (2003) 6 SCC 503, Swiss Timing Limited

vs. Commonwealth Games 2010 Organizing Committee (2014)

6 SCC 677 and World Sport Group (Mauritius) Limited Vs.

MSM Satellite (Singapore) Pte. Limited (2014) 11 SCC 639. It

was therefore submitted that the trial Court committed a

jurisdictional error in proceeding to entertain the suit.

The non-applicants though served were not

present on 6-12-2017 as well as on 4-1-2018 when the

learned Counsel for the applicants was heard. Today also

there is no appearance on their behalf. With the assistance of

learned Counsel for the applicants I have perused the

documents placed on record and I have considered his

submissions.

Perusal of the plaint indicates that it is the case of

the plaintiffs that their signatures were obtained on the loan

agreement without disclosing and explaining its contents to

them. There was no consent obtained from the plaintiffs and

therefore, the arbitration clause in the loan agreement could

not be given any legal effect. On that basis a declaration was

sought that the terms and conditions mentioned in the loan

agreement were never agreed upon by the plaintiffs.

It is not in dispute that the loan agreement

contains clause of arbitration being clause No.22. The effect

of presence of the arbitration clause is that the civil Court

loses its jurisdiction to entertain the dispute in question. In

Hindustan Petroleum Corpn. Ltd (supra), it was held by the

Hon''ble Supreme Court that by virtue of provisions of Section

16 of the said Act, the Arbitral Tribunal has the jurisdiction to

rule on any objection with respect to the existence or validity

of the arbitration agreement. The view as taken by the

Constitution Bench in Kokan Railway Corporation Limited Vs.

Rani Construction Pvt. Limited (2002) 2 SCC 388 was

followed. In Swiss Timing Ltd. (supra), it was held that on a

conjoint reading of Sections 5 and 16 of the said Act it was

clear that all matters including the issue as to whether the

main contract was void/voidable could be referred to

arbitration. The Court ought to decline arbitration only where

the Court can reach the conclusion that the contract is void

on a meaningful reading of the contract document itself

without the requirement of any further proof.

As noted above, it is the case of the plaintiffs that

their consent to the loan agreement was obtained without

making them aware about its actual contents. In other words,

according to the plaintiffs, the agreement would be voidable

at their instance. It can be seen that the application under

Section 9 of the said Act was entertained by the Court of

Madras in which the said plaintiffs had filed an application

for re-possession of the vehicle in question. The Arbitrator

came to be appointed thereafter. In these facts, prima-facie

the contention of the plaintiffs that the insertion of the

arbitration clause was void cannot be accepted. In such

situation, the Arbitrator would be competent to rule on his

jurisdiction as per Section 16 of the said Act. The trial Court

without considering the aforesaid legal position and by taking

into consideration the dispute raised by the plaintiffs with

regard to the manner in which the agreement was entered

into rejected the application. I find that the trial Court

committed a jurisdictional error when it continued to exercise

jurisdiction by entertaining the suit despite existence of

clause No.22 stipulating reference of disputes to an

Arbitrator. The impugned order is therefore liable to be set

aside.

In view of aforesaid discussion, the following

order is passed:

(1) The order passed below Exhibit-30 dated 17-12-

2011 in Regular Civil Suit No.759/2011 is quashed and set

aside.

(2) The application below Exhibit-30 is allowed in

terms of prayer clause (1) thereof.

(3) It is clarified that the plaintiffs would be at liberty

to raise all questions with regard to validity of the loan

agreement before the Arbitrator. Observations made in this

order are only for deciding the application under provisions

of Order VII Rule 11 of the Code.

(4) The Civil Revision Application is allowed in

aforesaid terms. No costs.