CANBANK FINANCIAL SERVICES LTD. Vs. SFL INDUSTRIES LTD.

JUDGEMENT

(1.) THIS application under Section 8 read with Section 9(e) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act" only) has been filed by defendant No. 2 with the prayer to stay the proceedings in the suit and refer the parties to arbitration.

(2.) THE facts relevant for the disposal of this application, briefly stated, are that the plaintiff has filed a suit for recovery of Rs. 1,20,49,597.24 p. against defendant No. 1 M/s. SFL Industries Limited and the defendant No. 2 -applicant alleging that the plaintiff had given plant machinery and other equipment on lease to defendant No. 1 vide lease agreement dated 12.12.1990. On 21.8.1991 and 27.9.1991, supplementary lease agreements were executed between the parties under which plant and machinery was installed at the factory of defendant No. 1. On 15.3.1996, the defendant No. 2 executed a guarantee in favour of the plaintiff to ensure payments by defendants No. 1 to the plaintiff in terms of the lease agreements dated 12.12.1990, 21.8.1991 and 27.9.1991. In view of the default and breach of the terms and conditions of the lease agreements, the plaintiff has filed this suit for recovery from defendant No. 1 as the principal borrower and the defendant No. 2 a guarantor.

(3.) AFTER hearing learned counsel for the parties and perusing the records, this Court finds that the deed of guarantee between plaintiff and defendant No. 2 executed on 15.3.1996 does not contain any arbitration clause but clear stipulations are there to say that the defendant No. 2 - guarantor had requested the plaintiff -lessor to give the equipment described in the lease agreement dated 12.12.1990 and supplementary agreements dated 21.8.1991 and 27.9.1991 to defendant No. 1 and had guaranteed the payment of lease rentals stipulated therein to the plaintiff. The agreements dated 12.12.1990, 21.8.1991 and 27.9.1991 were specifically referred to in the deed of guarantee dated 15.3.1996 and it was also stated that the liability of the defendant No. 2 was joint and several. Therefore, the arbitration clause, as contained in the lease agreement dated 12.12.1990, can be read into the deed of guarantee dated 15.3.1996 by implication. Since the plaintiff has chosen to file one suit against the principal borrower as well as the guarantor and the principal borrower is having an arbitration agreement with the plaintiff, there are good grounds for holding that all the parties to this suit are liable to be referred to arbitration in terms of the principal agreement dated 12.12.1990. Otherwise the position will be that the plaintiff and defendant No. 1 may go for arbitration and the plaintiff and defendant No. 2 may remain before the Court in spite of the fact that their liabilities are joint and several arising out of the same agreements. Even if it is held that there is no arbitration agreement between the plaintiff and defendant No. 2, there is no harm in referring the disputes in this suit to arbitration in terms of the principal agreement dated 12.12.1990 so that the disputes between all the three parties are adjudicated upon at one go and in case the plaintiff is entitled to recover any amount from the defendants, he has the same Award against both of them.