Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 11.05.2017
Pronounced on: 04.08.2017
+ EFA (OS) (COMM) 3/2017 & C.M. APPL.5425/2017
SANJEEV NARULA ..... Appellant
Through: Sh. Nakul Mohta and Sh. Johnson Subba,
Advocates.
versus
TATA CAPITAL FINANCIAL SERVICES LTD....... Respondents
Through: Sh. Saurabh Kirpal, Sh. Aditya Shankar,
Ms. Meghna Mishra, Sh. Rohan Sharma and Sh.
Naman Joshi, Advocates.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE YOGESH KHANNA
MR. JUSTICE S. RAVINDRA BHAT
%
1. The appellant is aggrieved by a judgment dated 10.01.2017 of a
learned Single Judge rejecting his objection to the maintainability of
execution proceedings filed by the Respondent, Tata Capital Financial
Services Limited (hereinafter, also referred to as “Tata Capital”) for the
enforcement of an arbitral award.
2. The facts of the case briefly, that Tata Capital sanctioned a term loan to
Lilliput Kidswear Ltd. (“Lilliput”, together with Mr. Narula referred to as the
“Appellants”) for a tenure of 48 months together with interest and other
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terms set out in the sanction letter dated 28 July 2011. Sanjeev Narula was
EFA (OS)(COMM) 3/2017 Page 1 of 26
a Director of Lilliput at the relevant time. He acted as guarantor and signed a
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deed of personal guarantee on 28 July 2011 in his personal capacity to
secure the loan. The guarantee was furnished in favour of Tata Capital,
irrevocably, unconditionally and personally, guaranteeing repayment of all
the amounts due and payable by Lilliput under the term loan agreement. As
guarantor, Mr. Narula created equitable mortgage of built-up immovable
property admeasuring 586.44 sq yards at 94, Block-D, Okhla Industrial
Estate, Phase-1, New Delhi (herein, also referred to as the “described
property”) in favour of Tata Capital by depositing the original title deeds. A
Memorandum of Entry dated 13th October, 2011 recorded this. Due to non-
payment of the outstanding dues, despite repeated reminders, to both Lilliput
and Mr. Narula, Tata Capital filed Arbitration Petition No. 782 of 2012 in
the High Court of Bombay, under Section 9 of the Arbitration and
Conciliation Act, 1996 (“the Act”) against both Lilliput and Mr. Narula.
3. The parties later sought to resolve their disputes on mutually agreed
consent terms dated 8th February 2013 in the said proceedings in the
Bombay High Court. In the meanwhile, a sole Arbitrator had already been
appointed by the parties. The Bombay High Court in Arb. P. No. 782/ 2012
passed an order dated 8th February 2013 recording that the consent terms
had been tendered. They were taken on record and the said petition was
disposed of in its terms. On 28th February 2013, the parties appeared before
the sole Arbitrator and he passed the following consent Award:
“ Heard advocates for parties. Both advocates have informed
me that by an order dated February, 2013 in Arbitration
Petition No. 782 of 2012 the parties have tendered the consent
terms before the Hon'ble High Court. The copy of the said
consent terms are tendered today. A copy of the order dated
EFA (OS)(COMM) 3/2017 Page 2 of 26
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8 February, 2013 is taken on record along with the copy of the
consent terms. The consent terms dated February, 2013 which
is sought to be tendered before me has been filed in the
aforesaid petition and Hon'ble High Court has disposed of the
petition in terms of these consent terms.
As per clause 9 of the consent terms parties have agreed to file
these consent terms before me and to pass the consent award in
terms on these consent terms. Since, the Hon'ble High Court
has accepted these consent terms by order dated February,
2013 these directions mentioned in clause 9 are binding on me.
I therefore pass the Consent Award in terms of these consent
terms which is tendered today. The parties shall pay
Arbitrator's fees for 2 days (4 hours) @20000/- per hour shared
equally and reading fees Rs. 50000/- shared equally amounting
to Rs. 65000/- each for the Claimant and the Respondent
respectively. The payment should be sent on or before 10th
March, 2013 to the Sole Arbitrator .”
4. The consent terms recorded parties’ agreement that in the event of
failure by Lilliput and Mr. Narula to pay any two installments/EMIs in any
financial year and such default remained unremedied after the expiry of 30
days from the date of the notice (given by Tata Capital) to remedy the breach
in the event of a second default, then the right, title and interest of the
Sanjeev Narula in the described property would stand transferred to the
books of Tata Capital, upon payment of requisite stamp and registration of
the consent terms. It was also stated that the consent terms in such event
would operate as a Conveyance Deed in respect of the described Property.
5. Tata Capital alleged that due to persistent defaults, it called upon Mr.
Narula to immediately vacate the property and hand over the vacant and
peaceful possession thereof, failing which they stated that they would
institute appropriate proceedings to evict the appellants. On the failure of
EFA (OS)(COMM) 3/2017 Page 3 of 26
Mr. Narula to hand over the possession of the described property to Tata
Capital, it approached this court, through execution proceedings (OMP (Enf)
(Comm) 46/2106. The appellant, Sanjeev Narula, objected to the
maintainability of the execution proceedings, by filing IA No. 13972/2017.
The objection to the execution petition was that the decision of the Supreme
Court in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. & Ors.
(2011) 5 SCC 532 per se rendered the award unenforceable, because any
arbitration in respect of mortgage disputes were incapable of resolution
through arbitration. The appellant also argued that under Section 47 of the
Code of Civil Procedure 1908 (CPC), it was within the jurisdiction of the
executing court to examine if the award under execution had been validly
passed. In support of this proposition, Mr. Mohta relied upon the decisions in
Kiran Singh v. Chaman Paswan AIR 1954 SC 340; Sushil Kumar Mehta v.
Gobind Ram Bohra (1990) 1 SCC 193 and the decision of the High Court of
Kerala in India Cements Capital Ltd. v. William & Ors 2015 (4) KLJ 08.The
appellant also placed reliance on Section 58(b) of the Transfer of Property
Act, 1882 , read with Section 60 and submitted that since the mortgagee was
not yet in possession, there could be no arbitral award in respect of that
property.
6. Tata Capital, argued that the decision in Booz Allen ( supra ) was
distinguishable on facts; it urged that Sanjeev Narula never challenged the
consent Award at any point of time. The execution petition was for the
enforcement of only one portion of the award regarding Tata Capital’s claim
to possession of the property the title of which was already transferred to it.
It was also contended that Tata Capital was not seeking the relief of
enforcing the mortgage as a substantive portion of that relief had already
EFA (OS)(COMM) 3/2017 Page 4 of 26
been granted.
7. The learned Single Judge, in consideration of the submissions made
by the counsels for both parties, came to the following conclusion:
“ 19. … the above decision (Booz Allen (supra)) is certainly
distinguishable on facts as far as the present case is concerned
as enforcement is not being sought at a stage where the
proceeding arising out of the mortgage is still pending at the
stage of trial. Here, there was consent by the parties involved
and it was in accordance with the consent terms that the sole
Arbitrator appointed by the parties passed the consent Award.
When the consent Award was acted upon and given effect to,
one important aspect of the consent Award regarding the
transfer of the mortgaged property in the books of the
Petitioner had already been implemented and there had been
no protest at any stage by the Respondent. With the parties
having accepted the consent Award and acted pursuant thereto
without any objection, the question of the Respondent now
being permitted to contend that the said consent Award is
without jurisdiction cannot and does not arise.
20. While Section 47 of the CPC does not permit the Court
seized with execution of a decree to entertain a challenge to the
decree itself on the ground of nullity for lack of jurisdiction,
that question does not arise in the present proceedings. With
the consent Award having already been acted upon by the
parties and substantially implemented, the question of now
allowing one of the parties to question the consent Award on
the ground of lack of jurisdiction will amount to an abuse of the
process of law and cannot be permitted.
*
22. The present proceedings are confined to the recovery of
possession of the property the title to which already stands
transferred in the name of the DH. This is, therefore, only as a
consequential step to the consent Award itself is possession
sought. ”
EFA (OS)(COMM) 3/2017 Page 5 of 26
8. Thus the learned Single Judge found no merit in the objections raised
by Mr. Narula against Tata Capital’s execution petition. It was further noted
by the Court that the said tenant i.e., LPT Retail Pvt. Ltd., of the described
premises, through its counsel Ms. Shikha Sarin undertook to deposit the rent
payable to Mr. Narula with the Registrar General of this Court till the
st
disposal of the execution petition. By order dated 21 October, 2016, the two
pay orders that had been deposited by the said tenant were directed by the
Court to be handed over to Tata Capital, and also to file an affidavit, placing
on record the complete details including copy of the lease deed by which it
was inducted as tenant in the property in question, within two weeks of
service of notice.
Contentions of parties
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9. The Appellant submitted that the consent Award dated 26 February,
2013 passed by the Arbitrator is a nullity and, therefore, there is no award /
decree in the eyes of law and in view of Booz Allen ( supra ) the Arbitral
Tribunal lacked the inherent jurisdiction to decide/hear a claim for
enforcement of mortgage; that the learned Single Judge erroneously
distinguished the Supreme Court's judgment in Booz Allen ( supra ) on the
basis that in the said case the challenge to the jurisdiction of the tribunal was
taken at the stage of considering an application under Section 8 of the Act. It
was further submitted by Mr. Mohta that the learned Single Judge erred in
holding that since as per the consent terms the title in the property had vested
with the respondent the award was not in the nature of a suit for enforcement
of mortgage.
10. Learned counsel argued that the consent terms refers to the property as
a mortgage property. It stipulated that the property would vest with the
EFA (OS)(COMM) 3/2017 Page 6 of 26
Respondent in its books of account for the purpose of adjusting the dues of
the Appellant. It was submitted that even after the conveyance of property in
the books of Tata Capital, the consent terms gave a right of redemption to
the Appellant. The consent terms were also submitted to be in the nature of a
mortgage as defined under Section 58 of the Transfer of Property Act, 1882 .
11. Mr. Mohta relied upon the conditions contained in the consent terms,
particularly clauses 10 and 11 and submitted that they conferred rights to the
appellant. According to him, the deed specifically stipulated an option that in
the event of the appellant returning the dues – despite the registration and
conveyance of the suit property (in Tata Capital’s favour) within six months
of such event, if the money were repaid, Sanjeev Narula could enforce the
right to re-conveyance. In this regard, reliance was placed upon Section 58
(e) to say that the transaction in this case, was in reality by way of English
mortgage. The said provision reads as follows:
“(e) English mortgage.—Where the mortgagor binds himself to
repay the mortgage-money on a certain date, and transfers the
mortgaged property absolutely to the mortgagee, but subject to
a proviso that he will re-transfer it to the mortgagor upon
payment of the mortgage-money as agreed, the transaction is
called an English mortgage.”
12. Learned counsel argued that the right of redemption can never be
extinguished; in support of this proposition, counsel relied upon the
judgment reported as Achaldas Durgaji Oswal v Gangabisan Heda (2003) 3
SCC 614, where it was held that:
“the right of redemption of mortgagor being a statutory right,
the same can be taken away only in terms of the proviso
appended to Section 60 of the Act which is extinguished either
EFA (OS)(COMM) 3/2017 Page 7 of 26
by a decree or by act of parties. Admittedly, in the instant case,
no decree has been passed extinguishing the right of the
mortgagor nor such right has come to an end by act of the
parties.”
13. Likewise, argued counsel, the decision in Harbans v. Om Prakash
AIR 2006 SC 686, Supreme Court approved Mulla‟s The Transfer of
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Property Act , 9 Ed, which observed that:
“The right of redemption is an incident of a subsisting
mortgage and subsist as long as the mortgage itself subsists. It
can be extinguished as provided in the section and when it is
alleged to be extinguished by a decree, the decree should run
strictly in accordance with the forum prescribed for the
purpose. Dismissal of an earlier suit for redemption whether as
abated or as withdrawn or in default would not be barred the
mortgagor from filing a second suit for redemption so long as
the mortgage subsists and the right of redemption is not
extinguished by the efflux of time or decree of the court in the
prescribed form.”
14. Mr. Saurabh Kirpal, learned counsel for the respondent, Tata Capital
contended that there was no question of the rule in Booz Allen (supra) being
attracted. It was submitted that the facts of the present case clearly
demonstrate that whereas parties had approached the High Court for
appointment of an arbitrator, they reached a settlement pending completion
of that proceeding. The Bombay High Court, therefore, appointed an
arbitrator; the process was to merely facilitate the embodiment of the consent
terms into an award. The consent terms were self executing in nature,
because in the contingency of the appellant defaulting in payment of
installments (agreed to by the consent terms) the property was to be
EFA (OS)(COMM) 3/2017 Page 8 of 26
registered and treated as Tata Capital’s assets. Thereupon, when the event
occurred, Tata Capital proceeded to show the asset in its books; the consent
agreement – in accordance with its terms, operated as a conveyance; it was
even registered.
15. Mr. Kirpal argued that the assistance of the court was not sought to
enforce the mortgage, or even to bring to sale the property; in such event,
arguably the rule against arbitration proceeding embracing claims to enforce
mortgage would have been attracted. What was sought was the assistance of
the court to get vacant and peaceful possession of the property, pursuant to
the title that vested in Tata Capital. In such event, there was no question of
Sanjeev Narula claiming back title, or seeking to redeem it, either under
Section 58 (e) of the Transfer of Property Act , or under the general law
relating to mortgages.
Analysis and conclusions
16. In the present case, Tata Capital filed an arbitration application under
Section 9 of the Act against Liliput and Mr. Narula. During its pendency, the
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parties sought to resolve their dispute and tendered consent terms dated 8
February, 2013 in the Bombay High Court. Clause 5 of these consent terms
stated how in case of a default in payment of outstanding dues, the right, title
and interest of Mr. Narula in the described property would stand transferred
to the books of Tata Capital. It is worded as follows:
“The Respondents agree that
(i) if the Respondent No.1 (Lilliput) fails to create the pari
passu charge as contemplated in clause 4(a) above or
(ii) fail to file these Consent Terms before the Sole Arbitrator
within a period of 30 days from date hereof or
EFA (OS)(COMM) 3/2017 Page 9 of 26
(iii) if the Respondents fail and/or neglect to pay any 2
instalments/EMIs payable to the Petitioner in any Financial
Year and such default remaining un-remedied after the expiry
of 30 days from the date of the notice being given by the
Petitioner to remedy the breach on the event of second default,
then in either of the above events, right, title and interest of the
Respondent No.2 (Sanjeev Narula) in the Mortgaged
Property(mentioned in Annexure "A") shall stand transferred to
the books of the Petitioner and only upon payment of requisite
stamp duty and registration of this consent terms without any
further act or deed on the part of the Respondents and these
consent terms for the said purpose in that event will operate as
a Conveyance Deed in respect of the Mortgaged Property more
particularly described in Annexure 'A' hereto. Financial Year
for the purpose of the consent terms means starting from April)
and ending on March every year thereafter. The Mortgaged
Property will be transferred in the books of Petitioner at a
price, which will be calculated in the manner prescribed
below:-
i. The Petitioner shall appoint Cushman &Wakefield (India)
Private Limited and Jones Lang Lasalle (hereinafter jointly
referred to as „the Valuers‟), as Valuers of the Mortgaged
Property and such appointment will be valid and binding on the
Respondents. For the purposes of the transfer, the average
value of the Mortgaged Property will be taken as the value
arrived at by the said Valuers.
ii. In the event of the Petitioner transferring the said Mortgaged
Property in their books in accordance with this Para, the right,
title, interest and ownership of the Mortgaged Property will
vest in the Petitioner and the value arrived by the Valuer as
mentioned in this Para will be adjusted against the Outstanding
Dues payable by the Respondents.
iii. The Respondents agree and undertake to render all co-
operations and to execute all requisite deeds and documents
and to do all acts and things necessary to complete such sale
EFA (OS)(COMM) 3/2017 Page 10 of 26
and convey good and marketable title to the satisfaction of the
Petitioner.”
17. Furthermore, Clause 9 (of the above consent terms) described the
appointment of the sole Arbitrator by mutual consent of the parties and the
agreement of the parties on the consent terms to be filed before the arbitrator
and the passing of the consent award in those terms. Indisputably, the sole
Arbitrator made the award that was not only previously negotiated with
consent of the parties (in the consent terms), but was also affirmatively acted
upon by Mr. Narula, as the title to the described passed to Tata Capital, in
the event of occurrence of the contingency, contemplated by the parties. The
contingency was default in payment of Tata Capital’s dues by Narula and
Lilliput, despite demand. The consent terms by agreement of parties,
operated as a conveyance, enabling the transfer of title to Tata Capital. This
condition was embodied in Clause 12 of the same document (consent terms);
it reads as follows:
“Subsequent to the transfer of the said Mortgaged Property in
the books of the Petitioner in pursuance of clause (5) above, if
within 6 months from such transfer, the Respondents repay the
entire OUTSTANDING DUES alongwith all costs, charges and
expenses at the cost of the Respondents, to the Petitioner, it is
ordered that the Petitioner shall transfer the mortgaged
property to the Respondent No. 2 and/or his nominee/s within a
period of 30 days from the date of full payment, being received
by the Petitioner and at the request of the Respondents, the
Petitioner shall execute all deeds, documents and writings in
that behalf. Upon payment of the stamp duty on the conveyance
(which shall be prepared by the Respondent No.2 or his
advocate), the Petitioner shall execute the conveyance and shall
attend the office of the Registrar/sub-Registrar of Assurances
for the purpose of the registration of such Conveyance as
EFA (OS)(COMM) 3/2017 Page 11 of 26
required under the provisions of the Indian Registration Act,
1908. In case of re-transfer of the Mortgaged Property to the
Respondent No. 2, as stated above, the Stamp duty and
Registration charges for such re-transfer/conveyance will be
borne and paid by the Respondent No. 2. On such re-transfer,
the Petitioner shall have no claim on the mortgaged property.
13. If the Respondents do not repay the Outstanding Dues to
the Petitioner within the period of 6 months from the date of the
Mortgaged property, the Petitioner will have absolute right to
transfer/sell the mortgaged property to any person or deal with
the same as the absolute owners in the manner they deem
appropriate.”
18. The transfer of possession of the premises, however, did not take place
because a third party tenant was in occupation. In fact, the consent Award
was not in effect an enforcement of a mortgage, as the right, title and interest
of Mr. Narula in the said property passed in pursuance of their terms. In
effect, the terms agreed upon, which were embodied in the award, were self
executory and did not depend upon the agency of the court. No doubt,
initially Tata Capital’s effort to have the conveyance (embodied in the
consent award) was unsuccessful, because the Sub-Registrar initially refused
to register the instrument, on the ground of limitation. However, on appeal,
Tata Capital succeeded; the conveyance embodied in the consent award, was
rd
registered on 23 October, 2015.
19. The facts in Booz Allen (supra) are inconsistent with the present case,
and pertain to, inter alia , the arbitrability of the enforcement of a mortgage,
whereas, in the present case, the enforcement of a mortgage is not in
contention. In Booz Allen ( supra ), there were two separate flats in Mumbai
owned by two companies which borrowed loans from SBI Home Finance
EFA (OS)(COMM) 3/2017 Page 12 of 26
Ltd. and as a security of the said loan, the said two flats had been mortgaged
in favour of the SBI. Under two leave and license agreements, the said
companies permitted Booz Allen to use their respective flats for a specified
term. All the parties then signed the agreements in question. Under a
tripartite deposit agreement entered into between the companies, Booz Allen
and SBI Home Finance Ltd., a refundable security deposit of 6.5 crores
`
was paid by Booz Allen to the said companies in equal proportion. Out of
that deposit, a substantial portion of the amount was directly paid to SBI
towards repayment of the loan taken by the companies. While the loan
amount of one of the companies was fully cleared and of the other remained
outstanding, the first company remained a guarantor for repayment of the
second company whose loan was continuing. The flat belonging to the first
company was mortgaged to SBI and remained as such towards security of
the liability of the second company. When the loan amount that was
outstanding was not paid, SBI filed a suit with the High Court of Bombay
against the two companies as Defendant. The suit was in respect of the flat
belonging to the first company. Booz Allen did not file a written statement
but a reply to the application for temporary injunction. Thereafter, Booz
Allen, prior to filing a written statement, applied to have the suit referred to
arbitration as provided in Clause 16 of the deposit agreement. The learned
Single Judge of the High Court dismissed the application. When the matter
reached the Supreme Court, one of the questions formulated was whether the
subject matter of the suit was arbitrable and whether the High Court ought to
have referred the parties to arbitration under Section 8 of the Act.
20. The Supreme Court held that a suit for enforcement of mortgaged
property by sale should be tried by a Court and not by the arbitral tribunal.
EFA (OS)(COMM) 3/2017 Page 13 of 26
The reason that weighed with the Court was that by the amended Order
XXXIV Rule 1 of CPC, all persons having interest either in the mortgage
security or in the right to redemption shall have the right to join as party to
any suit relating to mortgage, whether they are party to the mortgage or not.
With a view to avoid multiplicity of the proceedings and the possibility of
divergent views, the Court held that the arbitral proceedings would not be
suited. It was held that a suit for enforcement of mortgage will have to be
tried by the Courts of law and not by the Arbitral Tribunal. The reason for
this was that the enforcement of the mortgage is an exercise of a right in rem ,
and all disputes relating to rights in rem are to be adjudicated by courts and
public tribunals, as they are unsuitable for private arbitration. In the present
case, the vital difference, however, is that title of the property effectively
passed to Tata Capital, and the subject of enforceability of a right in rem is
not disputed; thus, the facts are distinct and the decision passed in this
judgment is irrelevant, hence, inapplicable to the present case.
21. The fact that the title of the described property stood transferred to
Tata Capital, in the absence of any dispute or contention by Mr. Narula
demonstrates his consent to this tranfer of title. The transfer of title was in
pursuance of the tendered consent terms, and thus, did not amount to an
enforcement of mortgage. For the Appellants in the instant case, to unduly
expand the applicability of the decision in Booz Allen ( supra ) to assert the
recovery of possession of the said property by contending nullity of the
consent Award thereby, amounts to an abuse of the process of law, as was
held in the order of the learned Single Judge. The relevant extracts from the
said order are as follows:
“ 19. As rightly pointed out by Mr. Kirpal, the above decision is
EFA (OS)(COMM) 3/2017 Page 14 of 26
certainly distinguishable on facts as far as the present case is
concerned as enforcement is not being sought at a stage where
the proceeding arising out of the mortgage is still pending at
the stage of trial. Here, there was consent by the parties
involved and it was in accordance with the consent terms that
the sole Arbitrator appointed by the parties passed the consent
Award. When the consent Award was acted upon and given
effect to, one important aspect of the consent Award regarding
the transfer of the mortgaged property in the books of the
Petitioner had already been implemented and there had been
no protest at any stage by the Respondent. With the parties
having accepted the consent Award and acted pursuant thereto
without any objection, the question of the Respondent now
being permitted to contend that the said consent Award is
without jurisdiction cannot and does not arise.
20. While Section 47 of the CPC does not permit the Court
seized with execution of a decree to entertain a challenge to the
decree itself on the ground of nullity for lack of jurisdiction,
that question does not arise in the present proceedings. With
the consent Award having already been acted upon by the
parties and substantially implemented, the question of now
allowing one of the parties to question the consent Award on
the ground of lack of jurisdiction will amount to an abuse of
the process of law and cannot be permitted. ”
22. The fact that Mr. Narula signed and consented to the consent order
dated 08.02.2013 before the Bombay High Court and subsequently agreed to
the consent Award dated 28.02.2013 demonstrates positive action on his part
to enforce the consent terms. Hence, disputing this transfer at this advanced
stage by the Appellants is contradictory to their conduct and untenable. A
similar issue was considered in the decision of the Bombay High Court
passed in the judgment of Tata Capital Financial Services Limited v.
Ramasarup Industries Limited 2013 (6) Bom CR 230 where it was relevantly
held as follows:
EFA (OS)(COMM) 3/2017 Page 15 of 26
“ 34. The consent terms filed by both parties in application filed
under section 9 under Arbitration Act, 1996 indicates that both
parties had agreed to refer the dispute to the arbitration and
had appointed the sole arbitrator . During the pendency of the
arbitration proceedings, by consent of both parties, private
receiver was appointed with power of sale such arbitration
proceedings and steps were taken by the private receiver by
consent of parties to sale the properties during the pendency
of arbitration proceedings. In my view coercive steps can be
stayed and not execution of consent orders. In my view
consent terms filed in court by parties was an agreement and
steps taken under such agreement cannot be stayed. It is clear
that there is apparent distinguishment between the expression
'proceedings' and 'suit' used in section 22(1) of SICA. In my
view, steps taken to enforce the consent order passed under
section 9 of the Arbitration and Conciliation Act, 1996 would
not be barred by section 22(1) of the SICA. ”
23. Again in Deepa Bhargava and Anr. V. Mahesh Bhargava and
Ors. (2009) 2 SCC 294 while adjudging whether the terms of a consent
decree can be varied by the executing court, the court held that if the parties
do not challenge the consent terms at a preliminary stage, and proceed to act
on them, they cannot be permitted to revert their stance on such terms. The
relevant extracts of the judgment are as follows:
“ 10. The parties had claimed their interest in the lands in suit
from a common ancestor. They entered into a compromise. A
decree was passed thereupon. A decree, as is well known,
remains valid unless set aside. Respondents never challenged
the validity or otherwise of the said consent decree. It was
acted upon. They had disposed of a property pursuant thereto
and, thus, took advantage of a part thereof. It was, therefore,
impermissible for them to resile therefrom.
11. There is no doubt or dispute as regards interpretation or
EFA (OS)(COMM) 3/2017 Page 16 of 26
application of the said consent terms. It is also not in dispute
that respondents-judgment debtors did not act in terms
thereof. ”
24. In Rangnath Haridas v. Dr. Shrikant B. Hegde 2006 (7) SCC513, the
parties had amicably settled their dispute and had filed consent terms.
However, one of the parties did not comply with his obligations under the
clauses of the consent terms. The Supreme Court thereby held such non-
compliance to be incongruous and directed the parties to strictly adhere to
and not deviate from the consent terms. The relevant paragraphs in from the
judgment are as follows:
“ 10. The appellant herein contends that despite such reciprocal
obligations on the part of the parties, the plaintiff-respondent
did not fulfill his obligation in terms thereof. It was in the
aforementioned context, another arrangement was said to have
been arrived at on 27.07.1995, pursuant whereto and in
furtherance whereof, the respondent herein offered to take an
amount of Rs. 32 lakhs enabling him to purchase the flat of his
choice in the vicinity instead of the concerned flat for which the
appellant herein agreed to pay the said amount. For the
reasons stated hereinafter, we may not consider that part of
submissions of the learned Counsel for the purpose of this case.
11. It appears that a notice of motion was filed before the High
Court by way of a Chamber summons, which was supported by
an affidavit affirmed by the respondent herein. In the said
affidavit, although the other clauses of the consent terms
entered into by and between the parties on 01.11.1991 had been
mentioned but erroneously Clauses 9 and 10, which impose
obligation on his part, had been omitted. We do not appreciate
such deliberate omission on the part of the respondent. The said
notice of motion was withdrawn on 30.07.2001.
*
13. Having heard the learned Counsel for the parties, we are of
EFA (OS)(COMM) 3/2017 Page 17 of 26
the opinion that as the High Court as also this Court are acting
on the basis of the terms of the consent decree, the reciprocal
obligations of the parties should be directed to be acted upon
simultaneously.
We are not satisfied that the consent terms were in any manner
substituted by another agreement between the parties. We,
therefore, are of the opinion that the parties should be directed
to give effect to the terms of the consent decree. We have
noticed hereinbefore, whereas the appellant herein is to
handover the flat to the respondent, the respondent was also
obligated to transfer the land situated in the District of Pune.
Both the parties have failed to comply with their mutual
obligations. ”
25. The court now deals with the appellants’ contention with respect to
the transaction being either a mortgage by conditional sale or a sale with a
condition of repurchase, or its being an English mortgage, with the further
contention that the right to redeem was not extinguished. The guiding
principles on this aspect are embodied in clause (c) of section 58 of the
Transfer of Property Act, 1886 (the “TP Act”) which defines “Mortgage by
conditional sale” as follows:
“ (c) Mortgage by conditional sale.
Where the mortgagor ostensibly sells the mortgaged property -
on condition that on default of payment of the mortgage money
on a certain date the sale shall become absolute, or on
condition that on such payment being made the sale shall
become void, or on condition that on such payment being made
the buyer shall transfer the property to the seller, the
transaction is called a mortgage by conditional sale and the
mortgagee a mortgagee by conditional sale.
Provided that no such transaction shall be deemed to be a
mortgage, unless the condition is embodied in the document
EFA (OS)(COMM) 3/2017 Page 18 of 26
which effects or purports to effect the sale. ”
26. The contents of the transaction evidenced by the deed executed
between the parties largely give form to the nature of such transaction.
However, nomenclature of the transaction – given by the parties is always
inconclusive of its true nature; it is guided by intention of the parties entering
into the transaction; in addition to the conditions of repurchase and the extent
of a debtor-creditor relationship between the parties, contained within such
document.
27. In the case reported as Vanchalabai Raghunath Ithape (D) by L.Rs. Vs.
Shankarrao Baburao Bhilare (D) by L.Rs. and Ors. (2013) 7 SCC 173 the
question to be addressed by the Court was whether the transaction in
question was a mortgage by conditional sale or a sale transaction with a
condition of repurchase. The trial court, in consideration of the provisions of
section 58(c) of the TP Act, did not consider it to be a sale transaction and
held it to be a mortgage transaction by conditional sale. The plaintiff’s suit
for redemption was accordingly decreed by the trial court, which declared
that the plaintiff was entitled to redeem the suit property after paying the
requisite amount to the defendant. Aggrieved by this judgment, the
defendant appealed. The District Judge allowed the appeal, holding that there
was no relationship of debtor and creditor between the parties nor was it a
case that the defendant was known to the plaintiff before the transaction and
consequently, the transaction in question was an absolute sale with a
condition of repurchase, and that the plaintiff failed to get the land re-
conveyed within stipulated period. In the plaintiff’s second appeal the High
Court affirmed the District Judge’s observations that the document in
EFA (OS)(COMM) 3/2017 Page 19 of 26
question was one of absolute sale with condition of repurchase. The Supreme
Court, in an appeal by special leave, by the plaintiff, noticed the findings of
the lower appellate court, and highlighted how although there was a
presumption that the transaction was a mortgage by conditional sale in cases
where the whole transaction is in one document, but the mere incorporation
of a term in the same document cannot always mean that the transaction
agreed between the parties was a mortgage transaction. The Supreme Court,
quoted the observations from Williams v. Owen 1840 5 My. And Cr. 303:
English Reports (ER) 41 (Chancery) 386 where it was held as follows:
“ It was held that in a mortgage the debt subsists and a right to
redeem remains with the debtor, but a sale with a condition of
repurchase is not a lending and borrowing arrangement; no
debt subsists and no right to redeem is reserved by the debtor,
but only a personal right to purchase. This personal right can
only be enforced strictly according to the terms of the deed and
at the time agreed upon. ”
28. It was held that it was not in dispute that after transfer of the land to
the respondent, they came in possession and used and enjoyed the suit
property as an absolute owner, and it was only after 11 years that the
plaintiff filed the suit alleging that the suit property was mortgaged in favour
of the respondent with a condition to reconvey the land. Thus, the Supreme
Court upheld the High Court’s decision of not interfering with the findings
of the first appellate court. I n C. Cheriathan v. P. Narayanan Embranthiri
and Ors. AIR 2009 SC 1502, interpreting the vexed question of whether a
deed amounted to one of absolute conveyance with a condition of repurchase
or a mortgage with conditional sale, reading the ingredients of section 58(c),
the Supreme Court held as follows:
EFA (OS)(COMM) 3/2017 Page 20 of 26
“… One of the ingredients for determining the true nature of
transaction, therefore, is that the condition of repurchase
should be embodied in the document which effects or purports
to effect the sale. Indisputably, the said condition is satisfied in
the present case.…A document, as is well known, must be read
in its entirety. When character of a document is in question,
although the heading thereof would not be conclusive, it plays a
significant role. Intention of the parties must be gathered from
the document itself but therefore circumstances attending
thereto would also be relevant; particularly when the
relationship between the parties is in question .”
29. There, the Supreme Court did not sustain the impugned judgment
wherein the High Court allowed interpreting the document in contention to
be a deed of mortgage and consequently holding that, inter alia , redemption
was maintainable, and set it aside. In an earlier judgment, Tamboli
Ramanlal Motilal (dead) by L.Rs. Vs. Ghanchi Chimanlal Keshavlal (dead)
by L.Rs. & Anr AIR 1992 SC 1236, likewise, in considering whether the
document in question was a mortgage by conditional sale within the meaning
of section 58 (c) of the TP Act, or a sale with option to repurchase,
highlighted the decision in Pandit Chunchun Jha v. Sheikh Ebadat Ali &
Anr . [1955] 1 SCR 174, and stated as follows:
“ …Having regard to the nice distinctions between a mortgage
by conditional sale and a sale with an option to repurchase,
one should be guided by the terms of the document alone
without much help from the case law. Of course, cases could be
referred for the purposes of interpreting a particular clause to
gather the intention. Then again, it is also settled law that
nomenclature of the document is hardly conclusive and much
importance cannot be attached to the nomenclature alone since
it is the real intention which requires to be gathered. It is from
this angle we propose to analyse the document. No doubt the
document is styled as a deed of conditional sale, but as we have
EFA (OS)(COMM) 3/2017 Page 21 of 26
just now observed, that is not conclusive of the matter.
What does the executant do under the document? He takes a
sum of Rs. 5,000/- in cash. The particulars are (a) Rs. 2,499/-
i.e. Rs. 899/- by mortgage of his house on 27.1.1944 and (b) Rs.
1,600/- by a further mortgage on 31.5.1947 totalling to Rs.
2,499/-. Thereafter, an amount of Rs. 2,501/- in cash was taken
from the transferee. The purpose was to repay miscellaneous
debts and domestic expenses and business. It is to be carefully
noted that this amount of Rs. 5,000/- was not taken as a loan at
all. As rightly observed by the High Court, by executing this
document the executant discharges all the prior debts and
outstandings. Where, therefore, for a consideration of a sum of
Rs. 5,000/- with the conditional sale is executed, we are unable
to see how the relationship of the debtor and the creditor can
be forged in. In other words, by reading the documents as a
whole, we are unable to conclude that there is a debt and the
relationship between the parties is that of a debtor and a
creditor. This is a vital point to determine the nature of the
transaction.
The property is sold conditionally for a period of five years and
possession is handed over. At the same time, the document
proceeds to state "Therefore, you and your heirs and legal
representatives are hereafter entitled to use, enjoy and lease the
said houses under the ownership right. (Emphasis supplied)
…The further clause in the document is to the effect that the
executant shall repay the amount within a period of five years
and in case he fails to repay neither he nor his heirs or legal
representatives will have any right to take back the said
properties. Here only the right of the transferor is emphasised,
while the right of the transferee to foreclose the mortgage is not
spoken to. That would be so, if the document were to be a
mortgage by conditional sale. Only in such a case the first
condition spoken to under Section 58(c) will come into play. It
is well-settled in law that the right of redemption and
foreclosure are co-extensive. The absence of such a right of the
EFA (OS)(COMM) 3/2017 Page 22 of 26
mortgagee could only mean that it is a conditional sale.
The last important clause is after the period of five years the
transferee will have a right to get the municipal records
mutated in his name and pay tax. Thereafter, the transferee will
have an absolute right to mortgage, sell, or gift the suit
property. Neither executant nor anyone else could dispute the
title. All the above clauses are clearly consistent with the
express intention of making the transaction a conditional sale
with an option to repurchase. ”
30. Therefore, whether a transaction amounts to a mortgage by conditional
sale or a sale with an option of repurchase has to be determined in the light
of the ingredients of the contended document, read in the light of section
58(c) of the TP Act, as interpreted in the various precedents as demonstrated
above. In the present case, as noticed earlier, the deed was not an “ostensible
sale”: the first ingredient necessary to attract Section 58 (c). It merely
recognized a pre-existing creditor debtor relationship and reiterated the
equitable mortgage created earlier; the terms of the consent award then
conferred an option upon the creditor, Tata Capital, to treat the instrument as
a conveyance in the event of default in re-payment. Thus, the instrument was
never a sale, to begin with; it became a sale deed, by default, as it were, upon
the default of the debtor/Sanjeev Narula. So far as English mortgage goes,
the terms of Section 58 (e) are categorical; the mortgagor should “bind”
himself to pay the amount by a certain date and transfer the property
absolutely. Here, the question of transfer “absolutely” never happened. It
was contingent upon the happening of an event, i.e. the appellants’ default.
31. The above discussion was necessary not only because the appellant
contended that the right to redeem property was not extinguished, but also to
EFA (OS)(COMM) 3/2017 Page 23 of 26
discern the true character of the transaction. The right to redeem a mortgage
is characterized as a valuable statutory one, and not easily derogable. It is
only by the conduct of parties, or by decree of court, that it can be
extinguished (Ref Proviso to Section 60, TP Act, and Achaldas Durgaji
Oswal (supra)). In this case, by the act of parties, the appellant consented to
the consent terms enlarging it into a conveyance (with its attendant
methodology of receiving consideration, as agreed, for such sale). Therefore,
the proviso to Section 60 operated to preclude redemption. In view of the
foregoing discussion, the court is satisfied that the appellant’s right to
redemption was not unfairly or in an unconscionable manner, extinguished.
32. In the light of the above discussion, the appellants’ contention that the
consent Award is a nullity in the light of Booz Allen (supra) is rejected as
insubstantial since in the present case, the ratio of that judgment is
inapplicable and the property described as above stands transferred to the
books of Tata Capital and the enforcement of the mortgage, per se , is not in
dispute at all. The title to the property passed in effect of the consent terms
and thus, the Appellants cannot be permitted to revert the status of the
property at this stage.
33. This court is of opinion that the learned Single Judge correctly
concluded on the inapplicability of the decision in Booz Allen (supra) to the
present case, though, the conclusion reached on the position of the described
property is incorrect. The sequitur to the non-application of the decision in
Booz Allen ( supra ) does not render the arbitral award (and the transfer of
title of the described property) a nullity. Yet, that does not result in
automatic rejection of the appellants’ objections.
34. What can be seen is that the agency of the court was not necessary for
EFA (OS)(COMM) 3/2017 Page 24 of 26
enforcement of the mortgage; it enlarged upon the occurrence of the event
agreed to by the parties, i.e. default in repayment of the appellants’ dues. The
conveyance embodied in the consent terms operated to confer title to the
property, to Tata Capital. Therefore, the ownership of the property changed.
Because of this development, neither did Tata Capital need to approach the
court either to seek enforcement of its dispute pertaining to any mortgage nor
for sale of property. Those are situations covered by Booz Allen (supra). As
far as Sanjeev Narula’s argument with respect to re-conveyance is
concerned, the terms of the consent award clearly envisioned that Tata
Capital could register the property by virtue of the consent terms.
35. The transfer of title to the described property meant that the rights of
parties under the consent award worked itself out. However, neither the
terms of consent, nor did the award confer, however, any right upon Tata
Capital to claim possession of the suit property. The absence of any right to
possession, and the submissions of Tata Capital, that the award did not
enforce the mortgage, but merely recorded the consent of parties to agree to
convey the described property in its favour, which worked itself out, without
court intervention, meant that the execution petition, in effect, really sought
something over and above the award. In other words, while Tata Capital’s
contentions about inapplicability of Booz Allen (supra) are sound, yet, those
arguments preclude it to use the remedy of execution, which is not
appropriate to work out substantive remedies, such as a claim to possession.
Consequently, Tata Capital’s claim over the possession of the property by
way of filing an execution petition for enforcement of the consent Award
was not maintainable, as it is not the case that a dispute has arisen from the
enforcement of the mortgage that was subsequently arbitrated.
EFA (OS)(COMM) 3/2017 Page 25 of 26
36. In the light of the above discussion, it is held that the appellants’
objection to maintainability of the execution proceeding, OMP (EN)
(COMM) No. 46/ 2016 for enforcement of the consent Award dated
28.02.2013 has to succeed, as execution is not the appropriate remedy for
claiming possession. However, the appellants’ contentions with respect to
nullity of the award are rejected as insubstantial. As the result of this
discussion, Tata Capital has to file a separate suit for seeking possession of
the premises. Tata Capital is granted six weeks’ time to approach the Court;
till such time, the directions made by the learned Single Judge in the order of
30.03.2017 maintaining status quo of the described property shall bind the
parties. The appeal is partly allowed in the above terms. No costs.
S. RAVINDRA BHAT
(JUDGE)
YOGESH KHANNA
(JUDGE)
AUGUST 04, 2017
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