M/s. Mahaveer Finance India Ltd. vs Mr. K. Pandurangan

R.S. Ramanathan, J.—Defendant in O.S. No. 3772 of 2011 on the file of the VII Assistant Judge, City Civil Court, Chennai is the revision

petitioner. Respondent/plaintiff filed the suit for declaration declaring that the seizure of the plaintiff''s vehicle bearing registration number TN-22-

A4260 by the defendant/revision petitioner is illegal, null and void and for mandatory injunction directing the revision petitioner to return the said

vehicle in good running condition. In that suit, the revision petitioner filed application u/s 8 of the Arbitration and Conciliation Act, 1996 to refer the

dispute to arbitration in terms of arbitration agreement and that application was dismissed and aggrieved by the same, this revision is filed.

It is submitted by the learned counsel for the revision petitioner that the respondent/plaintiff entered into a hire purchase agreement with the

revision petitioner for the purchase of the vehicle and executed a hire purchase agreement and as per the terms of the hire purchase agreement and

as per the power given under the agreement, in the event of default committed by the borrower, the financier is entitled to take possession of the

vehicle and exercising the said power, the revision petitioner took possession of the vehicle and that is challenged by the respondent by filing suit.

He further submitted that as per Article 20.1 of the Hire Purchase agreement, all disputes and claims arising out of the agreement shall be referred

to arbitration and therefore, by invoking the provision of section 8 of the Arbitration Act, the application was filed to refer the matter to arbitration

and without appreciating the object of the Arbitration and Conciliation Act, 1996 and the provisions of sections 5 and 8 of the said Act, the court

below dismissed the application and therefore, the order of the court below is liable to be set aside. He also relied upon the judgment reported in

Hindustan Petroleum Corpn. Ltd. Vs. Pinkcity Midway Petroleums, in support of his contention.

On the other hand, the learned counsel for the respondent/plaintiff submitted that having regard to the relief prayed for in that suit, the dispute

cannot be resolved by the arbitrator and the suit was filed challenging the illegal act of the revision petitioner in seizing the vehicle by taking the law

into their hands and when the revision petitioner acted in illegal manner, contrary to the hire purchase agreement, the only remedy open to the

respondent is to file a suit for declaration that the seizure of the vehicle by the revision petitioner is illegal and for consequential mandatory

injunction and the arbitrary action of the revision petitioner now questioned of can be considered only by civil court and also relied upon the

judgment reported in T.M.L. Financial Services Ltd. Vs. Vinod Kumar, ) in support of his contention.

It is admitted that the respondent entered into a hire purchase agreement and it is also not in dispute that the respondent committed default in

payment of dues as and when they became due. The grievance of the respondent is that even though the respondent has committed default in the

payment of dues, the seizure of the vehicle by the revision petitioner by force is against the terms of the hire purchase agreement and when the

revision petitioner acted in an illegal manner and seized the vehicle and the same is challenged by the respondent, only Civil Court can decide the

issue as to whether the seizure is legal or illegal and hence, the Civil Court has got jurisdiction.

According to me, the court below, without appreciating the express provisions of sections 5 and 8 of the Arbitration and Conciliation Act and

also without considering various clauses in the hire purchase agreement, erred in dismissing the application filed by the revision petitioner and ought

to have allowed the application and directed the parties to refer the matter for arbitration.

It is seen from the hire purchase agreement that event of default is mentioned in Article 12, and 18 instances are mentioned in Article 12 which

constitute events of default. As per Article 12.1, when the borrower fails to repay the loan or any fee, charges or costs in the manner contained

therein and any one of the installments or amount due thereunder remains unpaid after the date on which it is due, constitute event of default. As

stated supra, admittedly, the respondent/plaintiff committed default in payment of dues and therefore, as per Article 12.1, an event of default had

occurred. Article 13 deals with lender''s rights and as per Article 13.2, upon an occurrence of event of default, the borrower shall be bound to

return the asset to the lender at such location as the lender may designate in the same condition in which it was originally delivered to the borrower

and the borrower shall not prevent or obstruct the lender from taking the possession of the asset.

It is further stated that to exercise the right of taking possession of the asset, the lender is entitled to enter upon the premises or garage or godown

where the vehicle is kept and the lender, if necessary, can also break open any such place. Therefore, the power is given to the lender, in the event

of default committed by the borrower, to take possession of the vehicle when the borrower failed to return the asset.

It is the contention of the learned counsel for the respondent/plaintiff that as per Article 13.1, notice of intimation has to be sent to the borrower

about the default committed by him and the borrower must be called upon to pay the entire amount and other charges. He, therefore, submitted

that without giving notice, the financier has no right to take forcible possession of the vehicle and therefore, the seizure of the vehicle by the

financier is illegal and the court has got jurisdiction.

According to me, the contention of the learned counsel for the respondent cannot be accepted as the arbitration clause contained in Article 20

covers all circumstances. Article 20.1 is as follows:-

All disputes, differences and/or 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, 1956, or any statutory amendments thereof and shall be referred to the sole

Arbitration of an Arbitrator nominated by the Lender. The award given by such an Arbitrator shall be final and binding on the Borrower to this

agreement.

It is a term of this agreement that in the events of such an arbitrator to whom the matter has been originally referred dying or being unable to act for

any reason, the Lender, at the time of such death of the arbitrator or of his inability to act as arbitrator, shall appoint another person to act as

arbitrator. Such a person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor.

Therefore, all disputes, differences and claim arising out of agreement whether during its subsistence or thereafter shall be settled by the

arbitrator. As stated supra, the default committed by the respondent/plaintiff is not in dispute and the vehicle was taken by the financier as the

respondent/plaintiff has committed default in payment of rent. Therefore, the question to be decided is whether the revision petitioner has got a right

to take possession of the vehicle in the event of default committed by the borrower and according to me, such dispute has to be decided only by

the arbitrator as Article 20.1 covers such disputes.

In the judgment reported in Hindustan Petroleum Corpn. Ltd. Vs. Pinkcity Midway Petroleums, , it has been clearly held that of section 8 of

the Arbitration and Conciliation Act, 1996, is peremptory in nature and when there is an arbitration clause in the agreement, it is obligatory to refer

the party to the arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action if such application is made

except to refer the dispute to arbitrator.

In the judgment reported in T.M.L. Financial Services Ltd. Vs. Vinod Kumar, the Kerala High Court has held that even though there is a

clause in the agreement to refer the matter to arbitration, the vehicle cannot be seized illegally but only under due process of law and arbitration

clause in the agreement cannot be put forward as a shied when one of the parties committed an act opposed to public policy and cause injury to

other party.

According to me, the revision petitioner has not done any illegal act in seizing the vehicle and as stated supra, Article 13.2 gives power to the

financier to take possession of the vehicle in the case of default in payment of dues and as a matter of fact, the borrower is expected to surrender

the vehicle as soon as he has committed default and when the borrower has committed default as per the provisions of Article 12 of the hire

purchase agreement, it cannot be contended that the seizure is illegal and therefore, the civil court has got jurisdiction to entertain the suit

irrespective of the arbitration clause in the agreement. Therefore, the judgment reported in T.M.L. Financial Services Ltd. Vs. Vinod Kumar,

cannot be applied to the facts and circumstances of the case. Further, as per the judgment of the Honourable Supreme Court, when there is an

arbitration clause and the dispute is covered under the arbitration clause, the civil court has no jurisdiction and the matter has to be referred to

arbitration.

Hence, the order of the court below is set aside and the revision is allowed and the VII Assistant Judge, City Civil Court, Chennai is directed to

refer the matter to the arbitration. No costs. The connected miscellaneous petition is closed.