INDIA CEMENT CAPITAL LIMITED Vs. AUTO PINS LTD

JUDGEMENT

(1.) This Application has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act), seeking appointment of a Sole Arbitrator to adjudicate upon the disputes/claims between the Petitioner and the Respondent in accordance with Clause 33 of the Lease Agreement entered into between them on 27.1.2001. According to the Petitioner, it is a reputed Public Limited Company engaged in the business of extending finance facilities as a Non-Banking Finance Company to prospective customers under various schemes such as Loans, Hire Purchase, etc. The Respondent approached the Petitioner for availing a lease finance facility and the Petitioner extended the said facility to the Respondent. The parties entered into a Lease Agreement bearing No. 7200018 on 27.1.2001 for finance of the purchase of Parabolic Leaf Springs Automation and Hydraulic Systems with Servo Control. The Respondent undertook to pay the monthly lease rentals to the Petitioner on the due dates mentioned in the Agreement. However, since the very inception of the Agreement, the Respondent had been irregular in making payments of the monthly rentals and had defaulted in payment thereof from the 42nd lease rental. Despite letters reminders and personal visits from the Petitioner's side, the Respondent was not forthcoming with the outstanding dues. According to the Petitioner, as on 4.7.2008, a sum of Rs. 17,80,500/- was payable by the Respondent towards the lease rentals; a sum of Rs. 37,76,592/- was outstanding towards lease compensation charges levied at the contracted rate for belated payment/default made in payment of lease rentals; a sum of Rs. 56,500/- was due towards legal charges; a sum of Rs. 9,00,000/- was due towards the residual value and a sum of Rs. 18,87,953/- was due (towards interest on lease deposit, thus adding up to a total outstanding of Rs. 84,01,545/-. It is the case of the Petitioner that the Respondent is trying to evade payment of the dues under the pretext of becoming a Sick Company. Therefore, the Petitioner was constrained to refer the dispute to Arbitration, as contemplated by the Lease Agreement entered into between the parties. The Arbitration clause incorporated in the Lease Agreement contemplates any dispute/claim arising between the parties touching any matter covered by the Agreement to be referred to the Arbitration of two Arbitrators, one of which to be appointed by each party to the dispute in accordance with the Arbitration Act, 1940. Accordingly, the Petitioner issued a Notice on 4.7.2008, invoking the Arbitration clause. However, in view of the specific bar provided under Section 10 of the Act that the number of Arbitrators shall not be even number, the Arbitration clause in the present Lease Agreement could not be invoked and has become inoperative as it is not in consonance with Section 10 of the Act. Therefore, the Petitioner has approached this Court with the present Petition for the relief as stated above.

(2.) The Respondent has filed a Counter Statement wherein it has raised a preliminary issue of maintainability of the present Petition before this Court as it suffers from lack of territorial jurisdiction. According to the Respondent, the entire cause of action arose only at New Delhi, in that the Lease Agreement, coupled with the demand Promissory Note, the Agreements of Lease and Guarantee, were all executed on 27.1.2001 at New Delhi, and hence, the present Petition ought not be entertained by the Court at Chennai. The allegation of irregular payments right from the inception of the lease is denied by the Respondent. However, thereafter, based on the audited Balance Sheet dated 31.12.2003, the Respondent-Company had come to be declared a Sick Company by the Board of Industrial Finance and Reconstruction ('BIFR' for short) in Case No. 194 of 2004 and by order dated 29.8.2008, the BIFR had appointed Canara Bank as the operating agency to work out a scheme of revival of the Respondent-Company. The BIFR, while framing necessary schemes for rehabilitation of the Respondent-Company, has also made provisions for settlement of the unsecured loan availed by the Respondent from the Petitioner and another Company, to the tune of Rs. 27.11 lakhs, under a O.T.S. According to the Respondent, the Petitioner has full knowledge of these developments and yet it is insisting on the appointment of an Arbitrator to adjudicate the disputes. It is submitted that any claim that the Petitioner makes would be subject to the orders of the BIFR and the Operating Agency and therefore, the right course to be adopted by the Petitioner-Company would be to approach the Operating Agency for settlement of its dues, subject to the approval from the BIFR. According to the Respondent, the Petitioner was aware of the fact that the Respondent had been declared as Sick Company as early as on 31.12.2003, but yet chose to issue the statutory Notice for appointment of Arbitrator, without any sanction from the BIFR or intimation to the Operating Agency. It is also stated that the Petitioner had earlier filed O.A. No. 4440 of 2010 under Section 9 of the Act seeking attachment of the Respondent-Company's property pending initiation of the Arbitral proceedings. A detailed Counter Affidavit had been filed in that Application setting out that the cause of action has been concocted to Suit the needs of the Petitioner. The Said Application was got dismissed as withdrawn on 9.3.2011. The Respondent has denied the outstanding claimed by the Petitioner and according to it, the alleged claims regarding legal charges, residual value and actual interest charged are beyond the scope of the Agreement. According to the Respondent-Company, since it had already been declared as Sick Company by the BIFR, the question of evading payments as alleged by the Petitioner would not arise, nor would there be a need to refer the matter to Arbitration. The Respondent has reiterated the settled position of law that when a Company is before the BIFR, any question of payment can arise only with the concurrence and sanction of the BIFR as well as the Operating Agency.

(3.) Learned Counsel for the Petitioner submitted that the Lease Agreement entered into between the parties provided for resolution of disputes through Arbitration. Clause 33 of the Agreement provides for Arbitration and Clause 34 of the Agreement provides for the exclusive jurisdiction of Courts at Chennai in respect of all proceedings, which implies that it excludes the jurisdiction of Courts at other places, including the Courts at Delhi, as contended by he Respondent. According to the learned Counsel, the Respondent not having denied execution of the Agreement, is bound by the aforesaid clauses contained therein. It is submitted that even in the Counter Affidavit filed in O.A. No. 4440 of 2010, which was filed before this Court under Section 9 of the Act, the Respondent had nowhere raised the issue of jurisdiction and had submitted itself to the jurisdiction of this Court. Therefore, the present stand as regards jurisdiction is only an after-thought, just to evade the liability. Learned Counsel also submitted that Section 120 of the Code of Civil Procedure, 1908 specifically excludes the provisions of Section 20, C.P.C. as far as Chartered High Courts are concerned and under Clause 12 of the Letters Patent, this Court has the jurisdiction to entertain the present Petition, since the Petitioner's registered office is located in Chennai and the cheques issued by the Respondent-Company wire presented by the Petitioner to its bankers at Chennai and part of the cause of action had arisen in Chennai. Learned Counsel submits that when the Arbitration clause in the agreement specifies a particular forum for adjudication of the disputes, then the same should normally be given effect to. In support of his submissions, he has relied on the decisions rendered in Jindal Vijayanagar Steel Ltd. v. Jindal Praxair Oxygen Co. Ltd., 2006 4 CTC 573; Rajasthan State Electricity Board v. Universal Petrol Chemicals Ltd., 2009 3 SCC 107; and Shree Baidyanath Ayurved Bhawan (P.) Ltd. v. Praveen Bhatia, 2009 8 SCC 779; and A.V.M. Sales Corporation v. Anuradha Chemicals Pvt. Ltd., 2012 2 SCC 315.