Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ Arb. Petition No. 12/2009
th
8 March, 2010
M/S MAGNOSTAR TELECOMMUNICATIONS ...Petitioner
Through: Mr. Dinesh Agnani, Advocate.
VERSUS
KOTAK MAHINDRA BANK LTD. ....Respondent
Through: Mr. Jayant K. Mehta, Advocate.
CORAM:
HON’BLE MR. JUSTICE VALMIKI J.MEHTA
1. Whether the Reporters of local papers may be allowed to see
the judgment?
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in the Digest? Yes
% JUDGMENT (ORAL)
VALMIKI J.MEHTA, J
1. This is a petition under Section 11 of the Arbitration and Conciliation
Act, 1996, whereby the petitioner, a borrower, seeks reference of certain
disputes between it and the respondent bank/lender , to arbitration, in terms
of the following Clause:
“... Unless the same falls within the jurisdiction of the Debts
Recovery Tribunal established under the Recovery of Debts Due to
KMBLs (sic) Banks and Financial Institutions Act 1993, any and all
claims and disputes arising out of in connection with this Agreement
or its performance shall be settled by arbitration by a single
Arb.P. 12/2009 Page 1
Arbitrator to be appointed by KMBL. The arbitration shall be held
in Mumbai.
In the event that the claim or dispute does not fall within the
jurisdiction of the Debts Recovery Tribunal established under the
Recovery of Debts Due to KMBLs (sic) Banks and Financial
Institutions Act 1993, for the purposes of arbitration mentioned in
above, the Courts aforesaid, or if law does not permit the same, the
Courts of the city in which the concerned branch is situated, shall
have exclusive jurisdiction in relation to this agreement, the
arbitration and all matters arising in connection herewith and
therewith.” (Underlining added)
2. The petitioner states that disputes have arisen between the parties on
account of failure of the respondent, inter alia, to sanction the loan in a
timely manner and therefore, the petitioner is alleged to have been caused
losses. Paras 5 and 8 of the petition brings into focus the disputes between
the parties and the same read as under:-
5. That Petitioner always made the payment according to
the repayment schedule; however, the Respondent deliberately
delayed the sanctioning of the balance loan amount and on some
occasions unilaterally decreased the sanctioned credit limits which
seriously affected the business prospect of the Petitioner. The
Respondent also did not release the mortgaged properties to repay
the loan and the business of the Petitioner come to a grinding halt. It
is submitted that due to the breach of the terms and conditions of the
Agreement/Facility sanction letter Petitioner suffered huge losses
and therefore a legal notice dated 18.11.2008 was issued to the
Respondent claiming in total sum of Rs. 100,00,00,000/- (Rupees
Hundred Crores only) on account of the complete breach of
agreement and trust committed by Respondent. A true copy of the
legal notice dated 18.11.2008 is annexed herewith as Annexure-P-3.
8. That the Petitioner vide its notice invoking arbitration
categorically stated that in view of specific denial of the legitimate
claim/demand of Rs.100 Crores raised by the Petitioner by the
nd
Respondent vide their letter dated 2 Dec 2008, arbitral disputes had
arisen between the parties and requested the Respondent to appoint
an arbitrator to adjudicate the disputes having arisen between the
parties.”
Arb.P. 12/2009 Page 2
3. The respondent has appeared and opposed the reference of the
disputes to arbitration. The contention of the respondent is that by virtue of
the aforesaid Arbitration Clause, the subject matter of the dispute in the
present case, falls within the jurisdiction of the Debt Recovery Tribunal
(DRT) and by virtue of the aforestated agreed Arbitration Clause, the subject
matter of the disputes ought to be decided only by the DRT and not by
arbitration.
4. The counsel for the petitioner, on the other hand, vehemently disputes
the contention of the respondent and strongly placed reliance upon the
decision of the Supreme Court in the case of Nahar Industrial Enterprises
Ltd. Vs. Hong Kong & Shanghai Banking Corporation 2009 (10) Scale
360 . Mr. Agnani, on behalf of the petitioner, contends that after the decision
of the Supreme Court in the case of Nahar Industrial Enterprises , it is no
longer res integra that a civil suit filed by a borrower against a bank has an
independent status and an independent existence and the same cannot be
transferred to the DRT for decision.
5. The first decision of the Supreme Court with respect to transfer of the
proceedings pending in a civil court to the DRT is of the case United Bank
of India, Calculatta Vs. Abhijit Tea Co. Pvt. Ltd. and others (2000) 7 SCC
357 . The Supreme Court in Abhijit Tea’s case has held as under:
“The Company’s suit insofar it claims a relief for specific
performance, perpetual and mandatory injunctions, is in substance
under sub-sections (8) to (10) of Section 19 and is in the nature of
Arb.P. 12/2009 Page 3
a counter-claim. The plea for deduction of damages is in the
nature of a set-off falling within Sections 19(6) and (7). Both are
equated to cross-suits. If a set-off or a counter-claim is to be
equated to a cross-suit under Section 9, a fortiori there can be no
difficulty in treating the cross-suit as one by way of set-off and
counter-claim, and as proceedings which ought to be dealt with
simultaneously with the main suit by the Bank. (Para 41)
In the context, the word “counter-claim” in Sections 19(8) to
(11) which is equated to a cross-suit, includes a claim even if it is
made in an independent suit filed earlier. An agreement not to
charge interest, the specific performance of which is claimed is
nothing but a plea that the Bank could not charge interest. A
permanent injunction directing the Bank not to charge interest
because of an alleged agreement in that behalf is likewise a plea
that no interest is chargeable. So far as the plea for further
financial assistance is concerned, it is also, broadly, in the nature of
a “counter-claim”. All these fall under Sections 19(8) to (10).
Again, the plea for deducting “damages” though raised in the suit
is indeed broadly a plea of “set off” falling under sub-sections (6)
and (7) of Section 19. (Para 41)
It is therefore directed that the Bank’s suit be transferred by the
Registrar, Calcutta High Court to the appropriate Tribunal under
the Act, so far as the debtor Company’s suit is concerned, action
has to be taken likewise by the Registrar.” (Para 43)
The above observations were made in the context of Section 31 of the
Recovery of Debts Due to Banks & Financial Institutions Act, 1993 for
transfer of pending cases of bank to the DRT on passing of the 1993 Act and
when there were two proceedings pending in the civil court: First of a suit
filed by the Bank and secondly a suit filed by the borrower against the
Bank.
6. The ratio of Abhijit Tea Company’s case makes it clear that even a
wholly independent claim which has no nexus with the claim of the bank
can be treated as a matter in the nature of a set off and a counter-claim
Arb.P. 12/2009 Page 4
under Section 19(8) to (10) of the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 and which is liable to be transferred to the
DRT under Section 31 of the said Act.
7. The next judgment on the issue is the decision of the Supreme Court
in the case of Indian Bank vs. ABS Marine Products (P) Ltd. (2006) 5 SCC
72 . In this case of Indian Bank , the Supreme Court has held that civil suits
which are pending before a Civil Court, cannot be transferred to the DRT
when the two issues raised by the bank and the borrower were not
inextricably connected i.e decision in one would not affect the decision in
the other. The relevant portion of the said Supreme Court judgment in
Indian Bank reads as under:-
“ 9. The issues that arose in the Bank’s application were whether the
borrower failed to repay the sums borrowed and whether the Bank was
entitled to the amounts claimed. On the other hand, the issues that arose
in
the borrower’s suit were whether the Bank had promised/agreed
to advance certain monies; whether the Bank committed breach in
refusing to release such loans in terms of the sanction letter; whether the
borrower failed to fulfil the terms and conditions of sanction and
therefore the Bank’s refusal to advance, was justified; and even if there
was breach, whether the borrower suffered any loss on account of such
non-disbursement and if so whether the borrower was entitled to the
amounts claimed. While the claim of the Bank was for an ascertained
sum due from the borrower, the claim of the borrower was for damages
which required firstly a determination by the Court as to whether the
Bank was liable to pay damages and thereafter assessment of quantum of
such damages. Thus there is absolutely no connection between the
subject-matter of the two suits and they are in no way connected. A
decision in one does not depend on the other. Nor could there be any
apprehension of different and inconsistent results if the suit and the
application are tried and decided separately by different forums. In the
circumstances, it cannot be said that the borrower’s suit and the Bank’s
application were inextricably connected.”
Arb.P. 12/2009 Page 5
The aforesaid observations were made after noticing the decision in Abhijit
Tea Co.’s case and it was thus held that when the two suits are not
inextricably linked the transfer of the suit of the borrower to the DRT can
only be by the consent of the parties.
8. The next judgment which is relevant to the issue is the decision in
State Bank of India vs. Ranjan Chemicals Ltd. And Anr. (2007) 1 SCC 97 .
It was held by the Supreme Court in the judgment of Ranjan Chemicals
Ltd . that a court has the power in an appropriate case to transfer a suit for
being tried by the DRT. The relevant portions of the judgment of the
Supreme Court in the Ranjan Chemicals Ltd . case read as under:-
“A court has the power in an appropriate case to transfer a suit for
being tried with another if the circumstances warranted and justified it. In
the light of the conclusion that the claim of the Company in the suit could
be considered to be a claim for set-off and a counterclaim within the
meaning of Section 19 of the 1993 Act, the only question is whether in the
interests of justice, convenience of parties and avoidance of multiplicity of
proceedings, the suit should be transferred to the Debt Recovery Tribunal
for being tried jointly with the application filed by the Bank as a cross-suit.
As the proceedings before the Debt Recovery Tribunal could not be
transferred to the civil court since that is a proceeding before a tribunal
specifically constituted under the 1993 Act and the same has to be tried
only in the manner provided by the Act and by the Tribunal created under
the Act, the only other alternative would be to transfer the suit to the
Tribunal in case that is found warranted or justified.
Here, the same basic evidence will have to be taken in both the
proceedings. Duplication of evidence could be avoided if the two actions
are tried together. If a decree is granted to the Bank on the basis of its
accounts, and the damages, if any, are decreed in favour of the Company, a
set-off could be directed and an ultimate order or decree passed in favour
of the Bank or the Company. In such a situation, this is a fit case where
the two actions should be ordered to be tried together. Hence, the money
suit of the Company is transferred to the Debt Recovery Tribunal for being
treated as a counterclaim by way of a cross-suit and for being jointly tried
and disposed of with the application of the Bank.” (paras 11 to 13)
Arb.P. 12/2009 Page 6
9. All the aforesaid judgments have been considered and explained by
the Supreme Court in the decision of Nahar Industrial Enterprises (supra) .
The Supreme Court has reaffirmed the ratio of Indian Bank’s case and has
explained and differentiated the ratio in the case of Ranjan Chemicals Ltd.
(supra) . The ratio as laid down by the Supreme Court in the case of Nahar
Industrial Enterprises is that an independent civil suit, cannot be transferred
for being decided by the DRT merely because an application for recovery of
the amount is filed by the bank, and which is pending. The Supreme Court
however reiterated that transfer of the suit of the borrower to the DRT can
take place by consent of the parties. (See para 121 of the said decision)
10. The facts of the present case are different than the facts of all the
above said cases of the Supreme Court. As held by the Constitution Bench
judgment of the Supreme Court in the case of Padma Sundara Rao Vs.
State of Tamil Nadu (2002) 3 SCC 533 ,each case has to be read in the facts
and circumstances particular to it. The Constitution Bench has said that
even a single fact can make an entire difference between the decision in two
cases and its ratios. The facts of this case are different because the agreed
Arbitration Clause envisages that disputes which can be the subject matter of
decision by the DRT ought to be tried and settled only by the DRT and since
even an independent counter-claim can be decided by the DRT, as held in
the aforesaid judgments of the Supreme Court, the matters sought to be
referred to arbitration can and ought to be decided by the DRT. It is trite
Arb.P. 12/2009 Page 7
that the jurisdiction of the Arbitration Tribunal arises on account of the
Arbitration Clause between the parties. It is the scope of the Arbitration
Clause/agreement which determines the matters which can be referred to be
decided by the Tribunal. If the subject matter of the disputes are specifically
excluded by the Arbitration Clause, then, such disputes cannot be referred to
arbitration, because the same, in a way, would be excluded or excepted
matters. Also when two or more courts/forums have jurisdiction then parties
can agree that any one court/forum will have exclusive jurisdiction and this
is so by virtue of the Arbitration Clause in the facts of the present case that
once the matters are such that they can be decided by DRT, then only the
DRT will have exclusive jurisdiction and consequently there is an express
ouster of the jurisdiction of the civil courts/arbitration. In any case, the
language of the Arbitration Clause shows the consent of the parties to get the
matters which are the subject matters of this petition to be decided by the
DRT and therefore it can be said that by consent the parties have agreed that
the DRT gets the exclusive jurisdiction as per Nahar Industrial Enterprises
case
11. Mr. Agnani counsel for the petitioner very vehemently contended that
on the date when this arbitration petition was filed on 9.1.2009, there were
no pending proceedings before the DRT and consequently there was no
occasion for the petitioner to file its claims as counter-claims/set off before
the DRT. He further contended that in fact on the date when the arbitration
Arb.P. 12/2009 Page 8
was invoked i.e on 6.12.2008, there were no proceedings pending and
consequently, the petitioner had no option but to invoke the Arbitration
Clause seeking reference of its disputes to arbitration. Putting it differently
Mr. Agnani contends that if there was no Arbitration Clause, the petitioner
would have in fact filed a civil suit on 6.12.02008 and since arbitration has
been invoked on 6.12.2008 the same would have an independent status, by
virtue of the decision in Nahar Industrial Enterprises , and such civil
proceedings cannot be transferred for decision by the DRT, more so as the
stage in the DRT is of the Bank’s evidence.
12. I am afraid that I cannot agree with the contentions as raised by the
counsel for the petitioner. This is because of the judgments of the Supreme
Court, including the judgments in the cases of Indian Bank and Nahar
Industrial Enterprises specifically reserve the position when by consent
matters between a borrower and a lender could be referred for decision by
the DRT. Meaning thereby, the Supreme Court has said that if the parties’
consent to refer the matters pending in a civil suit for decision by the DRT,
then, the matters can in fact be referred for decision by the DRT. The only
issue is would it make any difference if the borrower is first of the blocks
and the bank subsequently files an application for recovery in the DRT. One
thing which is absolutely clear is that it is not as if the DRT does not have
the jurisdiction to determine the disputes as are sought to be raised by the
petitioner, however, the petitioner is contesting the issue with regard to
Arb.P. 12/2009 Page 9
transfer of the present dispute for being decided by the DRT on the ground
that the invocation of the arbitration petition is earlier in point of time on
6.12.2008 when, since no application for recovery by the bank was pending,
the petitioner had no option but to file the petition seeking reference of the
disputes to arbitration.
The facts of the present case throws up an interesting question with
regard to whether there can be direction to get the disputes of the petitioner
decided by the DRT although there were no pending proceedings before the
DRT when the Arbitration Clause was invoked or should the disputes be
decided only by the Arbitration Tribunal under the Arbitration Clause in
such circumstances. I am of the opinion that once there is an agreed
understanding and a consent of the petitioner to refer the disputes which can
be the subject matter of decision by the DRT only by the DRT, then once the
bank files an application for recovery before the DRT, the Clause of consent
requiring the matters raised by the borrower to be decided by the DRT
immediately comes into play, and at which stage the present petitioner who
would be the respondent in the said proceedings can and ought to file its
counter-claims in the DRT because it is not that its counter-claims which is
sought to be referred to arbitration has come to such an advanced stage of
decision in arbitration that it would be injustice to the petitioner for transfer
of its disputes which are subject matter of decision by the Arbitrator to the
DRT. For example, before the Arbitrator, the stage may be the stage of final
Arb.P. 12/2009 Page 10
arguments or stage may be where the evidence is at an extremely advanced
stage or more or less concluded and so on. In such circumstances, it
possibly may be urged by the petitioner in the facts of a particular case that
it should not be forced to get its disputes decided by the DRT because lot of
water has flown under the bridge since the invocation, commencement and
continuation of the Arbitration proceedings. In the present case however this
is not so, and, on the contrary, the respondent, in my opinion, can validly
contend that if there is any delay in disposal of the present petition, the same
should not be held against the respondent because the response to this
petition was filed by the respondent in March, 2009 itself (and in which
month also the present petitioner and the respondent in the DRT
proceedings was served) and thus the petitioner at that stage could very
much have filed its counter-claim in the DRT and also since in March 2009
both the present proceedings and proceedings in the DRT were more or less
at the same stage of pleadings. Thus no doubt a suit or arbitration
proceedings can be filed by the borrower when there are no pending
proceedings in the DRT, but once the DRT proceedings are filed, ordinarily
by virtue of the consent contained in the agreed Arbitration Clause, the
suit/arbitration proceedings have to be transferred for decision by the DRT
as the consent clause gets activated on the Bank initiating the proceedings
before the DRT.
13. On the aforesaid facts therefore, the following conclusions emerge:-
Arb.P. 12/2009 Page 11
(i) By virtue of the decision in Nahar Industrial Enterprises case
an independent civil suit cannot be referred for determination
by the DRT.
(ii) The decision in Nahar Industrial Enterprises however
specifically reserves the position that the parties can consent to
get decided the subject matter of the suit/arbitration
proceedings by the DRT inasmuch as the DRT has inherent
jurisdiction to determine the counter-claims and set off of a
borrower.
(iii) The Arbitration Clause, between the parties in the present case,
in my opinion, shows a consent whereby the petitioner has
agreed that the subject matter of its disputes can and ought to be
decided by the DRT and it is not necessary that the consent
must be given only after a civil suit is already filed or
arbitration proceedings are invoked, because the consent can
always be a consent which is prior in point of time to the
arising of the disputes and which consent gets activated on
proceedings by the Bank being filed in the DRT. This position
of prior consent is fortified by the fact that in arbitration matters
there is a prior consent before arising of disputes necessitating
arbitration that the matters would be decided in Arbitration.
There is also in many cases a prior consent for a specific person
Arb.P. 12/2009 Page 12
to be an Arbitrator. If therefore, there can be a prior consent to
arbitration, I do not see how there cannot be prior consent to
decide the matters and disputes of a borrower by the DRT and
which as per the language of the Arbitration Clause in the
present case, the petitioner has agreed should and ought to be
decided only by the DRT.
(iv) If no application for recovery is filed before the DRT by the
Bank, the civil suit/arbitration proceedings can be filed and
continued. However once the proceedings by the Bank are
filed before the DRT, without the suit/arbitration proceedings
having reached the final or very advanced stages, then, the civil
suit/arbitration proceedings ordinarily ought to be transferred
for being tried and decided by the DRT.
14. In view of the aforesaid, I hold that the Arbitration Clause in the
present case amounts to consent to refer the disputes (which are sought to be
got referred by the petitioner to arbitration) for decision by the DRT. Since it
was not necessary that the consent ought to be given only after the civil suit
is filed or arbitration proceedings are invoked, but, the consent can always
be a prior consent which comes into operation on filing of proceeding by the
Bank before the DRT, the disputes in the present petition ought to be
decided by the DRT. There is also ouster of jurisdiction of civil
courts/arbitration by the agreed clause reproduced in para 1 above and that
Arb.P. 12/2009 Page 13
the disputes which are sought to be referred for arbitration are by consent of
the parties an excepted or excluded matter for being decided only by the
DRT.
15. The petition is therefore not maintainable, and the same is therefore
dismissed with liberty to the petitioner to file its disputes as a counter-
claim/set off in the proceedings before the DRT. Mr. Jayant K.Mehta
counsel for the respondent very fairly states that respondent would not raise
any objection to the filing of the counter-claims or set off in the DRT
whether with respect to limitation or otherwise, subject of course to the
respondent’s right to take all other defences on merits and otherwise. I also
hold that if there is any delay in filing of the counter-claim/set off, the
petitioner would in fact be entitled to the benefit of Section 14(2) of the
Limitation Act,1963 because the petitioner has bonafidely filed and pursued
its remedy in this court. I may finally state that as of date there is no suit or
arbitration proceedings for being transferred to DRT and therefore I have no
option but to dismiss the present petition giving liberty to the petitioner as
aforestated.
16. With the aforesaid observations, the petition stands dismissed leaving
the parties to bear their own costs.
VALMIKI J.MEHTA, J
March 08, 2010
ib
Arb.P. 12/2009 Page 14
+ Arb. Petition No. 12/2009
th
8 March, 2010
M/S MAGNOSTAR TELECOMMUNICATIONS ...Petitioner
Through: Mr. Dinesh Agnani, Advocate.
VERSUS
KOTAK MAHINDRA BANK LTD. ....Respondent
Through: Mr. Jayant K. Mehta, Advocate.
CORAM:
HON’BLE MR. JUSTICE VALMIKI J.MEHTA
1. Whether the Reporters of local papers may be allowed to see
the judgment?
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in the Digest? Yes
% JUDGMENT (ORAL)
VALMIKI J.MEHTA, J
1. This is a petition under Section 11 of the Arbitration and Conciliation
Act, 1996, whereby the petitioner, a borrower, seeks reference of certain
disputes between it and the respondent bank/lender , to arbitration, in terms
of the following Clause:
“... Unless the same falls within the jurisdiction of the Debts
Recovery Tribunal established under the Recovery of Debts Due to
KMBLs (sic) Banks and Financial Institutions Act 1993, any and all
claims and disputes arising out of in connection with this Agreement
or its performance shall be settled by arbitration by a single
Arb.P. 12/2009 Page 1
Arbitrator to be appointed by KMBL. The arbitration shall be held
in Mumbai.
In the event that the claim or dispute does not fall within the
jurisdiction of the Debts Recovery Tribunal established under the
Recovery of Debts Due to KMBLs (sic) Banks and Financial
Institutions Act 1993, for the purposes of arbitration mentioned in
above, the Courts aforesaid, or if law does not permit the same, the
Courts of the city in which the concerned branch is situated, shall
have exclusive jurisdiction in relation to this agreement, the
arbitration and all matters arising in connection herewith and
therewith.” (Underlining added)
2. The petitioner states that disputes have arisen between the parties on
account of failure of the respondent, inter alia, to sanction the loan in a
timely manner and therefore, the petitioner is alleged to have been caused
losses. Paras 5 and 8 of the petition brings into focus the disputes between
the parties and the same read as under:-
5. That Petitioner always made the payment according to
the repayment schedule; however, the Respondent deliberately
delayed the sanctioning of the balance loan amount and on some
occasions unilaterally decreased the sanctioned credit limits which
seriously affected the business prospect of the Petitioner. The
Respondent also did not release the mortgaged properties to repay
the loan and the business of the Petitioner come to a grinding halt. It
is submitted that due to the breach of the terms and conditions of the
Agreement/Facility sanction letter Petitioner suffered huge losses
and therefore a legal notice dated 18.11.2008 was issued to the
Respondent claiming in total sum of Rs. 100,00,00,000/- (Rupees
Hundred Crores only) on account of the complete breach of
agreement and trust committed by Respondent. A true copy of the
legal notice dated 18.11.2008 is annexed herewith as Annexure-P-3.
8. That the Petitioner vide its notice invoking arbitration
categorically stated that in view of specific denial of the legitimate
claim/demand of Rs.100 Crores raised by the Petitioner by the
nd
Respondent vide their letter dated 2 Dec 2008, arbitral disputes had
arisen between the parties and requested the Respondent to appoint
an arbitrator to adjudicate the disputes having arisen between the
parties.”
Arb.P. 12/2009 Page 2
3. The respondent has appeared and opposed the reference of the
disputes to arbitration. The contention of the respondent is that by virtue of
the aforesaid Arbitration Clause, the subject matter of the dispute in the
present case, falls within the jurisdiction of the Debt Recovery Tribunal
(DRT) and by virtue of the aforestated agreed Arbitration Clause, the subject
matter of the disputes ought to be decided only by the DRT and not by
arbitration.
4. The counsel for the petitioner, on the other hand, vehemently disputes
the contention of the respondent and strongly placed reliance upon the
decision of the Supreme Court in the case of Nahar Industrial Enterprises
Ltd. Vs. Hong Kong & Shanghai Banking Corporation 2009 (10) Scale
360 . Mr. Agnani, on behalf of the petitioner, contends that after the decision
of the Supreme Court in the case of Nahar Industrial Enterprises , it is no
longer res integra that a civil suit filed by a borrower against a bank has an
independent status and an independent existence and the same cannot be
transferred to the DRT for decision.
5. The first decision of the Supreme Court with respect to transfer of the
proceedings pending in a civil court to the DRT is of the case United Bank
of India, Calculatta Vs. Abhijit Tea Co. Pvt. Ltd. and others (2000) 7 SCC
357 . The Supreme Court in Abhijit Tea’s case has held as under:
“The Company’s suit insofar it claims a relief for specific
performance, perpetual and mandatory injunctions, is in substance
under sub-sections (8) to (10) of Section 19 and is in the nature of
Arb.P. 12/2009 Page 3
a counter-claim. The plea for deduction of damages is in the
nature of a set-off falling within Sections 19(6) and (7). Both are
equated to cross-suits. If a set-off or a counter-claim is to be
equated to a cross-suit under Section 9, a fortiori there can be no
difficulty in treating the cross-suit as one by way of set-off and
counter-claim, and as proceedings which ought to be dealt with
simultaneously with the main suit by the Bank. (Para 41)
In the context, the word “counter-claim” in Sections 19(8) to
(11) which is equated to a cross-suit, includes a claim even if it is
made in an independent suit filed earlier. An agreement not to
charge interest, the specific performance of which is claimed is
nothing but a plea that the Bank could not charge interest. A
permanent injunction directing the Bank not to charge interest
because of an alleged agreement in that behalf is likewise a plea
that no interest is chargeable. So far as the plea for further
financial assistance is concerned, it is also, broadly, in the nature of
a “counter-claim”. All these fall under Sections 19(8) to (10).
Again, the plea for deducting “damages” though raised in the suit
is indeed broadly a plea of “set off” falling under sub-sections (6)
and (7) of Section 19. (Para 41)
It is therefore directed that the Bank’s suit be transferred by the
Registrar, Calcutta High Court to the appropriate Tribunal under
the Act, so far as the debtor Company’s suit is concerned, action
has to be taken likewise by the Registrar.” (Para 43)
The above observations were made in the context of Section 31 of the
Recovery of Debts Due to Banks & Financial Institutions Act, 1993 for
transfer of pending cases of bank to the DRT on passing of the 1993 Act and
when there were two proceedings pending in the civil court: First of a suit
filed by the Bank and secondly a suit filed by the borrower against the
Bank.
6. The ratio of Abhijit Tea Company’s case makes it clear that even a
wholly independent claim which has no nexus with the claim of the bank
can be treated as a matter in the nature of a set off and a counter-claim
Arb.P. 12/2009 Page 4
under Section 19(8) to (10) of the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 and which is liable to be transferred to the
DRT under Section 31 of the said Act.
7. The next judgment on the issue is the decision of the Supreme Court
in the case of Indian Bank vs. ABS Marine Products (P) Ltd. (2006) 5 SCC
72 . In this case of Indian Bank , the Supreme Court has held that civil suits
which are pending before a Civil Court, cannot be transferred to the DRT
when the two issues raised by the bank and the borrower were not
inextricably connected i.e decision in one would not affect the decision in
the other. The relevant portion of the said Supreme Court judgment in
Indian Bank reads as under:-
“ 9. The issues that arose in the Bank’s application were whether the
borrower failed to repay the sums borrowed and whether the Bank was
entitled to the amounts claimed. On the other hand, the issues that arose
in
the borrower’s suit were whether the Bank had promised/agreed
to advance certain monies; whether the Bank committed breach in
refusing to release such loans in terms of the sanction letter; whether the
borrower failed to fulfil the terms and conditions of sanction and
therefore the Bank’s refusal to advance, was justified; and even if there
was breach, whether the borrower suffered any loss on account of such
non-disbursement and if so whether the borrower was entitled to the
amounts claimed. While the claim of the Bank was for an ascertained
sum due from the borrower, the claim of the borrower was for damages
which required firstly a determination by the Court as to whether the
Bank was liable to pay damages and thereafter assessment of quantum of
such damages. Thus there is absolutely no connection between the
subject-matter of the two suits and they are in no way connected. A
decision in one does not depend on the other. Nor could there be any
apprehension of different and inconsistent results if the suit and the
application are tried and decided separately by different forums. In the
circumstances, it cannot be said that the borrower’s suit and the Bank’s
application were inextricably connected.”
Arb.P. 12/2009 Page 5
The aforesaid observations were made after noticing the decision in Abhijit
Tea Co.’s case and it was thus held that when the two suits are not
inextricably linked the transfer of the suit of the borrower to the DRT can
only be by the consent of the parties.
8. The next judgment which is relevant to the issue is the decision in
State Bank of India vs. Ranjan Chemicals Ltd. And Anr. (2007) 1 SCC 97 .
It was held by the Supreme Court in the judgment of Ranjan Chemicals
Ltd . that a court has the power in an appropriate case to transfer a suit for
being tried by the DRT. The relevant portions of the judgment of the
Supreme Court in the Ranjan Chemicals Ltd . case read as under:-
“A court has the power in an appropriate case to transfer a suit for
being tried with another if the circumstances warranted and justified it. In
the light of the conclusion that the claim of the Company in the suit could
be considered to be a claim for set-off and a counterclaim within the
meaning of Section 19 of the 1993 Act, the only question is whether in the
interests of justice, convenience of parties and avoidance of multiplicity of
proceedings, the suit should be transferred to the Debt Recovery Tribunal
for being tried jointly with the application filed by the Bank as a cross-suit.
As the proceedings before the Debt Recovery Tribunal could not be
transferred to the civil court since that is a proceeding before a tribunal
specifically constituted under the 1993 Act and the same has to be tried
only in the manner provided by the Act and by the Tribunal created under
the Act, the only other alternative would be to transfer the suit to the
Tribunal in case that is found warranted or justified.
Here, the same basic evidence will have to be taken in both the
proceedings. Duplication of evidence could be avoided if the two actions
are tried together. If a decree is granted to the Bank on the basis of its
accounts, and the damages, if any, are decreed in favour of the Company, a
set-off could be directed and an ultimate order or decree passed in favour
of the Bank or the Company. In such a situation, this is a fit case where
the two actions should be ordered to be tried together. Hence, the money
suit of the Company is transferred to the Debt Recovery Tribunal for being
treated as a counterclaim by way of a cross-suit and for being jointly tried
and disposed of with the application of the Bank.” (paras 11 to 13)
Arb.P. 12/2009 Page 6
9. All the aforesaid judgments have been considered and explained by
the Supreme Court in the decision of Nahar Industrial Enterprises (supra) .
The Supreme Court has reaffirmed the ratio of Indian Bank’s case and has
explained and differentiated the ratio in the case of Ranjan Chemicals Ltd.
(supra) . The ratio as laid down by the Supreme Court in the case of Nahar
Industrial Enterprises is that an independent civil suit, cannot be transferred
for being decided by the DRT merely because an application for recovery of
the amount is filed by the bank, and which is pending. The Supreme Court
however reiterated that transfer of the suit of the borrower to the DRT can
take place by consent of the parties. (See para 121 of the said decision)
10. The facts of the present case are different than the facts of all the
above said cases of the Supreme Court. As held by the Constitution Bench
judgment of the Supreme Court in the case of Padma Sundara Rao Vs.
State of Tamil Nadu (2002) 3 SCC 533 ,each case has to be read in the facts
and circumstances particular to it. The Constitution Bench has said that
even a single fact can make an entire difference between the decision in two
cases and its ratios. The facts of this case are different because the agreed
Arbitration Clause envisages that disputes which can be the subject matter of
decision by the DRT ought to be tried and settled only by the DRT and since
even an independent counter-claim can be decided by the DRT, as held in
the aforesaid judgments of the Supreme Court, the matters sought to be
referred to arbitration can and ought to be decided by the DRT. It is trite
Arb.P. 12/2009 Page 7
that the jurisdiction of the Arbitration Tribunal arises on account of the
Arbitration Clause between the parties. It is the scope of the Arbitration
Clause/agreement which determines the matters which can be referred to be
decided by the Tribunal. If the subject matter of the disputes are specifically
excluded by the Arbitration Clause, then, such disputes cannot be referred to
arbitration, because the same, in a way, would be excluded or excepted
matters. Also when two or more courts/forums have jurisdiction then parties
can agree that any one court/forum will have exclusive jurisdiction and this
is so by virtue of the Arbitration Clause in the facts of the present case that
once the matters are such that they can be decided by DRT, then only the
DRT will have exclusive jurisdiction and consequently there is an express
ouster of the jurisdiction of the civil courts/arbitration. In any case, the
language of the Arbitration Clause shows the consent of the parties to get the
matters which are the subject matters of this petition to be decided by the
DRT and therefore it can be said that by consent the parties have agreed that
the DRT gets the exclusive jurisdiction as per Nahar Industrial Enterprises
case
11. Mr. Agnani counsel for the petitioner very vehemently contended that
on the date when this arbitration petition was filed on 9.1.2009, there were
no pending proceedings before the DRT and consequently there was no
occasion for the petitioner to file its claims as counter-claims/set off before
the DRT. He further contended that in fact on the date when the arbitration
Arb.P. 12/2009 Page 8
was invoked i.e on 6.12.2008, there were no proceedings pending and
consequently, the petitioner had no option but to invoke the Arbitration
Clause seeking reference of its disputes to arbitration. Putting it differently
Mr. Agnani contends that if there was no Arbitration Clause, the petitioner
would have in fact filed a civil suit on 6.12.02008 and since arbitration has
been invoked on 6.12.2008 the same would have an independent status, by
virtue of the decision in Nahar Industrial Enterprises , and such civil
proceedings cannot be transferred for decision by the DRT, more so as the
stage in the DRT is of the Bank’s evidence.
12. I am afraid that I cannot agree with the contentions as raised by the
counsel for the petitioner. This is because of the judgments of the Supreme
Court, including the judgments in the cases of Indian Bank and Nahar
Industrial Enterprises specifically reserve the position when by consent
matters between a borrower and a lender could be referred for decision by
the DRT. Meaning thereby, the Supreme Court has said that if the parties’
consent to refer the matters pending in a civil suit for decision by the DRT,
then, the matters can in fact be referred for decision by the DRT. The only
issue is would it make any difference if the borrower is first of the blocks
and the bank subsequently files an application for recovery in the DRT. One
thing which is absolutely clear is that it is not as if the DRT does not have
the jurisdiction to determine the disputes as are sought to be raised by the
petitioner, however, the petitioner is contesting the issue with regard to
Arb.P. 12/2009 Page 9
transfer of the present dispute for being decided by the DRT on the ground
that the invocation of the arbitration petition is earlier in point of time on
6.12.2008 when, since no application for recovery by the bank was pending,
the petitioner had no option but to file the petition seeking reference of the
disputes to arbitration.
The facts of the present case throws up an interesting question with
regard to whether there can be direction to get the disputes of the petitioner
decided by the DRT although there were no pending proceedings before the
DRT when the Arbitration Clause was invoked or should the disputes be
decided only by the Arbitration Tribunal under the Arbitration Clause in
such circumstances. I am of the opinion that once there is an agreed
understanding and a consent of the petitioner to refer the disputes which can
be the subject matter of decision by the DRT only by the DRT, then once the
bank files an application for recovery before the DRT, the Clause of consent
requiring the matters raised by the borrower to be decided by the DRT
immediately comes into play, and at which stage the present petitioner who
would be the respondent in the said proceedings can and ought to file its
counter-claims in the DRT because it is not that its counter-claims which is
sought to be referred to arbitration has come to such an advanced stage of
decision in arbitration that it would be injustice to the petitioner for transfer
of its disputes which are subject matter of decision by the Arbitrator to the
DRT. For example, before the Arbitrator, the stage may be the stage of final
Arb.P. 12/2009 Page 10
arguments or stage may be where the evidence is at an extremely advanced
stage or more or less concluded and so on. In such circumstances, it
possibly may be urged by the petitioner in the facts of a particular case that
it should not be forced to get its disputes decided by the DRT because lot of
water has flown under the bridge since the invocation, commencement and
continuation of the Arbitration proceedings. In the present case however this
is not so, and, on the contrary, the respondent, in my opinion, can validly
contend that if there is any delay in disposal of the present petition, the same
should not be held against the respondent because the response to this
petition was filed by the respondent in March, 2009 itself (and in which
month also the present petitioner and the respondent in the DRT
proceedings was served) and thus the petitioner at that stage could very
much have filed its counter-claim in the DRT and also since in March 2009
both the present proceedings and proceedings in the DRT were more or less
at the same stage of pleadings. Thus no doubt a suit or arbitration
proceedings can be filed by the borrower when there are no pending
proceedings in the DRT, but once the DRT proceedings are filed, ordinarily
by virtue of the consent contained in the agreed Arbitration Clause, the
suit/arbitration proceedings have to be transferred for decision by the DRT
as the consent clause gets activated on the Bank initiating the proceedings
before the DRT.
13. On the aforesaid facts therefore, the following conclusions emerge:-
Arb.P. 12/2009 Page 11
(i) By virtue of the decision in Nahar Industrial Enterprises case
an independent civil suit cannot be referred for determination
by the DRT.
(ii) The decision in Nahar Industrial Enterprises however
specifically reserves the position that the parties can consent to
get decided the subject matter of the suit/arbitration
proceedings by the DRT inasmuch as the DRT has inherent
jurisdiction to determine the counter-claims and set off of a
borrower.
(iii) The Arbitration Clause, between the parties in the present case,
in my opinion, shows a consent whereby the petitioner has
agreed that the subject matter of its disputes can and ought to be
decided by the DRT and it is not necessary that the consent
must be given only after a civil suit is already filed or
arbitration proceedings are invoked, because the consent can
always be a consent which is prior in point of time to the
arising of the disputes and which consent gets activated on
proceedings by the Bank being filed in the DRT. This position
of prior consent is fortified by the fact that in arbitration matters
there is a prior consent before arising of disputes necessitating
arbitration that the matters would be decided in Arbitration.
There is also in many cases a prior consent for a specific person
Arb.P. 12/2009 Page 12
to be an Arbitrator. If therefore, there can be a prior consent to
arbitration, I do not see how there cannot be prior consent to
decide the matters and disputes of a borrower by the DRT and
which as per the language of the Arbitration Clause in the
present case, the petitioner has agreed should and ought to be
decided only by the DRT.
(iv) If no application for recovery is filed before the DRT by the
Bank, the civil suit/arbitration proceedings can be filed and
continued. However once the proceedings by the Bank are
filed before the DRT, without the suit/arbitration proceedings
having reached the final or very advanced stages, then, the civil
suit/arbitration proceedings ordinarily ought to be transferred
for being tried and decided by the DRT.
14. In view of the aforesaid, I hold that the Arbitration Clause in the
present case amounts to consent to refer the disputes (which are sought to be
got referred by the petitioner to arbitration) for decision by the DRT. Since it
was not necessary that the consent ought to be given only after the civil suit
is filed or arbitration proceedings are invoked, but, the consent can always
be a prior consent which comes into operation on filing of proceeding by the
Bank before the DRT, the disputes in the present petition ought to be
decided by the DRT. There is also ouster of jurisdiction of civil
courts/arbitration by the agreed clause reproduced in para 1 above and that
Arb.P. 12/2009 Page 13
the disputes which are sought to be referred for arbitration are by consent of
the parties an excepted or excluded matter for being decided only by the
DRT.
15. The petition is therefore not maintainable, and the same is therefore
dismissed with liberty to the petitioner to file its disputes as a counter-
claim/set off in the proceedings before the DRT. Mr. Jayant K.Mehta
counsel for the respondent very fairly states that respondent would not raise
any objection to the filing of the counter-claims or set off in the DRT
whether with respect to limitation or otherwise, subject of course to the
respondent’s right to take all other defences on merits and otherwise. I also
hold that if there is any delay in filing of the counter-claim/set off, the
petitioner would in fact be entitled to the benefit of Section 14(2) of the
Limitation Act,1963 because the petitioner has bonafidely filed and pursued
its remedy in this court. I may finally state that as of date there is no suit or
arbitration proceedings for being transferred to DRT and therefore I have no
option but to dismiss the present petition giving liberty to the petitioner as
aforestated.
16. With the aforesaid observations, the petition stands dismissed leaving
the parties to bear their own costs.
VALMIKI J.MEHTA, J
March 08, 2010
ib
Arb.P. 12/2009 Page 14