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Judgment
Prathiba M. Singh, J
This hearing has been done through hybrid mode (physical and virtual hearing).
The Petitioners are stated to have availed of a loan facility with Kotak Mahindra Bank (hereinafter, ‘Bank’). The total loan disbursed to the
Petitioners was Rs.15,00,000/-. A total amount of Rs.12,88,555.20/- is outstanding, though, the Petitioners have made several representations to the
Bank for restructuring of the loan.
Various emails were sent by the Petitioners to the Bank for restructuring of the loan, which are annexed along with the petition. However, on 21st
November, 2020, the Petitioners received notice dated 4th November, 2020, along with appointment letter dated 2nd November, 2020 by which an
arbitrator was appointed by the Bank. The said arbitrator is an advocate based in Chennai. Suddenly, on 21st December, 2020, i.e. within a few weeks
of the Petitioners receiving the notice, they received an order dated 7th December, 2020, purportedly passed by the arbitrator.
There are two versions of this order dated 7th December, 2020 which are placed on record. In the first version, one Mr. Shorya Verma, has been
appointed as the receiver to take possession and custody of the movable properties of the Petitioners mentioned in the schedule. The operative portion
of the order reads as under:
“Accordingly, Order is passed directing the appointment of Mr. Shorya Verma as the receiver for taking possession and custody of the
moveable properties of respondent, mentioned in the schedule hereunder and for which purpose the said receiver is hereby authorized to
take necessary aid from police, in whose jurisdiction the properties are found.
And further the respondents are directed to disclose their other assets as mentioned in para 2 above, to the receiver appointed.â€
In the second version of the order, four persons have been appointed as the receivers. The operative portion of the order is as under:
“Accordingly, Order is passed directing the appointment of Mr. Sanjeev Jain or Ravi Bansal or Ashok Kumar as the receiver for taking
possession and custody of the moveable properties of respondent, mentioned in the schedule hereunder and for which purpose the said
receiver is hereby authorized to take necessary aid from police, in whose jurisdiction the properties are found.
And further the respondents are directed to disclose their other assets as mentioned in para 2 above, to the receiver appointed.â€
Ld. counsel for the Petitioners submits that Respondent No. 4, i.e., Mr. Ramashankar, an officer of the Bank, along with the Delhi Police, reached
the residence of the Petitioners at about 1:00 pm on 30th December, 2020 and forcibly entered the premises. There are allegations that an amount of
Rs. 20,000/- was taken by the constable, however, this is disputed by the police. It is further alleged that the Petitioners were forced to make an
NEFT transfer of Rs.59,205/- to the Bank and also give the Bank a cheque of Rs.1,18,410/-. Further, on 1st January, 2021, Respondent No.4 is stated
to have visited the Petitioners and threatened them into depositing a further sum of Rs.59,205/- into the account of the Bank. Subsequently, Petitioner
No.1 visited Respondent No.3 in the police station. Attempts are stated to have been made to meet Respondent No.1, however, Respondent No.1
refused to meet Petitioner No.1. On 6th January, 2021, a complaint was filed by the Petitioners with Respondent No.1 against police officials who had
accompanied Respondent No.4 to threaten the Petitioners. A further complaint was made against Respondent No.3 being appointed as the
Investigation Officer, on the ground that the Petitioners’ complaint was also against him. The Investigating Officer was subsequently changed,
however, the Petitioners’ submission is that they continue to be harassed by the Respondents. Accordingly, the Petitioners pray for the following:
“(a) direct the respondent No.2 to take appropriate action on the complaint of the petitioners and be further pleased to direct respondent
No.3 to issue receipt of having received Rs.20,000/- in cash which till date has not been given by him towards his expenses in giving police
protection to respondent No.4;
(b) direct respondent No.2 to take appropriate action against respondent No.4 for misusing the police as representative of respondent No.5
to extract money without following due process of law;
(c) restrain the Respondent No.6 from proceeding further as his appointment is contrary to the law settled by the Hon’ble Apex Court
and is not in accordance with due procedures of law as laid down under Arbitration and Conciliation Act, 1996;
(d) pass any other writ, order and direction that this Hon’ble Court may deem fit and proper in the facts and circumstances of the case
and in the larger public interest.â€
After perusal of the record, this Court is of the opinion that the manner in which the order under Section 17 of the Arbitration & Conciliation Act,
1996 (hereinafter, ‘Act’) is sought to be enforced through the police and the receiver would be contrary to law. Section 17 of the Act reads as
under:
Interim measures ordered by arbitral tribunal. -- (1) A party may, during the arbitral proceedings, apply to the arbitral tribunal--
(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of the following matters, namely: -
(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which
any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the
possession of any party, or authorising any samples to be taken, or any observation to be made, or experiment to be tried, which may be
necessary or expedient for the purpose of obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the arbitral tribunal to be just and convenient, and the arbitral tribunal shall
have the same power for making orders, as the court has for the purpose of, and in relation to, any proceedings before it.
(2) Subject to any orders passed in an appeal under section 37, any order issued by the arbitral tribunal under this section shall be deemed
to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908 (5 of 1908), in the same
manner as if it were an order of the Court.]â€
A perusal of Section 17 shows that any order passed under Section 17 can only be enforced in accordance with law. Thus the party in whose
favour an order under Section 17 is passed ought to approach the executing court in the concerned area for appropriate orders. The manner in which
the ld. Arbitrator has directed appointment of a receiver and passed an order permitting the bank to take police aid is prima facie not tenable.
In Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd., (2007) 7 SCC 125, the Supreme Court has held that the underlying principles of
the CPC would be applicable for grant of interim measures under Section 9 of the Act. Extending the rationale of Adhunik Steels (supra) to orders
passed under Section 17 of the Act, the Madras High Court, in Flywheel Logistics Solutions Pvt. Ltd. v. Hinduja Leyland Finance Ltd. & Ors., (2020)
7 MLJ 475, has held as follows:
“28. It may be noticed that the concluding words of Section 17(1) is now identical with Section 9(1) and runs “and the court shall
have the same power for making orders as it has for the purpose and in relation to any proceedings before itâ€. A fortiori, there can,
therefore, be no quarrel that the Tribunal, like a Court under Section 9(1) is, therefore, legally mandated to test the case of the applicant
with reference to the well-known parameters of a) prima facie case b) balance of convenience and c) irreparable loss before granting an
order of injunction.
…
In such view of the matter, this Court is of the view that while appointing a receiver as an interim measure under section 17 of the
Arbitration and Conciliation Act, the tribunal has to follow the procedure well established as indicated above in various judgments.
…
This Court has also come across mechanical Orders passed for appointment of receiver to seize the vehicle. Though the contract for
hire purchase provides for repossession of vehicles by appointing a receiver, the tribunal has to follow the procedures as contemplated
under law. When the properties are movables, running machineries, receiver cannot be mechanically appointed to seize the movables out of
which the respondent is earning his livelihood. Merely because the contract provides for repossession of machineries, Order directing
repossess the vehicle cannot be passed mechanically without the tribunal satisfying well settled position of law. If really, the appointment of
receiver is required, to secure the amount, receiver can be appointed to oversee the business and collect the income and not to seize
machineries to keep them in idle condition. When such Orders are passed and machineries are kept in idle, it will in fact diminish not only
the value of the machineries but also lead to loss of livelihood of the other side. Such circumstances has to be foreseen by the tribunal while
passing the Orders.
As per Order 40 of Civil Procedure Code, the purpose of appointing a receiver as contemplated under Order 40 has to oversee the
property in respect of which the receiver is to be appointed. The receiver, in fact, would be given a power to manage, protect and preserve
and improve the property, besides collection of rents thereon. Even the Court has no power to remove from possession or custody of the
property, any person whom any party to suit has not a present right so to remove. Whenever the receiver is appointed in respect of the
property, he has to furnish security as the court thinks fit, duly to account for what he shall receive in respect of the property and submit his
accounts at such periods and in such form as the Court directs and pay the amount due from him as the Court directs and be responsible for
any loss occasioned to the property by his wilful default or gross negligence. As far as management of the property is concerned, he has
responsibility over the property and he cannot commit gross negligence. Sub Clause 4 of Order 40 CPC deals with enforcement of receiver
duties. High Court Amendment (Madras) Act that in the event, the receiver failed to submit the accounts, the Court can even attach his
property.
A reading of the above provision makes it clear that mechanically receiver cannot be appointed to deal with the property. His
appointment is coupled with the responsibilities and duties. Whereas, in the pretext of power granted in the contract, the receivers have
been mechanically appointed under section 17 of the Arbitration and Conciliation Act, particularly in the dispute arising out of the hire
purchase agreement. Therefore, the Order of the tribunal is capable of execution as a decree of a civil Court, the arbitral tribunal has to
follow the procedures as contemplated under law.â€
The authority allegedly exercised by the police for enforcement of the order passed by the arbitrator is clearly questionable. Under such
circumstances, it is deemed appropriate to call for a status report from the ACP of the concerned area, as to the facts pleaded in the present case. In
addition, a report shall be placed on record by Mr. Sameer Vashisht, ld. counsel appearing for the Delhi Police, after obtaining instructions from the
Commissioner of Police, as to whether it is commonplace for the police to accompany receivers who are officers of the respective Banks, for
enforcing orders passed by arbitrators, without approaching an executing court, as alleged in the present case. If so, how many such actions have
been taken in the last two months, i.e. December, 2020 and January, 2021. Let the data be placed on record before this Court. The report shall be
filed within four weeks.
The Bank is permitted to file a reply to the petition within four weeks. In its reply, the Bank shall confirm the contents of the petition and as to
whether it is common for the Bank and its receivers to take police help straightaway without an order passed by the executing court, by visiting the
residences/premises of borrowers along with the police. If so, how many such actions have been taken by the Bank in the last two months i.e.,
December 2020 and January 2021.
Considering the nature of this matter, the proceedings before the ld. Arbitrator shall remain stayed, subject to the Petitioners depositing a sum Rs.
5,00,000/- before this Court within four weeks. The said amount shall be deposited in the name of the Registrar General of this Court and kept in an
FDR on auto-renewal mode.
List on 23rd April, 2021.