MUTHU SRINIVASAN Vs. LAKSHMI GENERAL FINANCE LIMITED

JUDGEMENT

(1.) THIS petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award passed by the arbitrator in Arbitration Case No. SK/LGF/1 of 2000 dated 26.4.2003.

(2.) THE brief facts are as follows:(a) THE petitioner herein is the guarantor under the lease agreement/Exhibit A-3 dated 28.8.1955 entered into between the first respondent and the second respondent/the borrower for purchase of a TATA Truck. It is stated that the petitioner herein joined as guarantor by executing separate guarantee letter guaranteeing the due fulfillment of obligation of the borrower, the second respondent. THE total lease amount was to the tune of Rs.8,69,760/- THE first of the installments commenced on 28.8.1995 and the last installment to end on 27.8.1999, thus spanning to a period of 48 monthly installments. Invoice for the vehicle was raised in the name of the leasing company as owners. According to the first respondent, the lessee committed default in payment of the monthly installment due from 8th month onwards. THE notice sent did not result in any positive response in clearing the arrears. Hence, the first respondent called upon the second respondent to surrender the vehicle. Accordingly, the same was surrendered on 16.9.1996. Since the second respondent did not send necessary forms and the original R.C. Book for selling the vehicle, the first respondent sent a notice on 19.9.1996 to the second respondent to settle the contract amount, failing which, it was intimated that the vehicle would be sold. Three afterwards, the first respondent sold the vehicle for a sum of Rs. 2,08,330/- on 11.6.1998. THE first respondent issued a notice on 27.7.1998 informing of the sale and called upon the petitioner and the borrower/the second respondent to pay the shortfall amount. It is stated that, even to that, there was no response. This was followed by yet another letter on 10.11.1999. Ultimately, the arbitration clause in the lease agreement was invoked to settle the dispute.(b) THE first respondent filed the claim statement before the, arbitrator appointed In terms of the agreement clause, wherein it was stated that the petitioner, herein had joined as a guarantor in the said lease agreement to guarantee the due performance of the obligations of the principal lessee/the second respondent herein. As the liability of the petitioner was joint and several with that of the second respondent, the first respondent prayed for the award to be passed in terms of the claim made directing the petitioner as a guarantor and the second respondent as a lessee to pay the amount of Rs.7,41,415/- jointly and severally with interest at the rate of 24% p.a. from the date of the claim petition till the date of realization.(c) On notice, the petitioner and the second respondent raised preliminary objection as to the arbitrability of the dispute. Under order dated 17.7.2000, the arbitrator overruled the preliminary objection. THEreafter, the lessee and the petitioner herein filed separate counters. In the counter filed by the lessee, the second respondent herein contended that once the vehicle was surrendered, the contract was revoked as such, the first respondents could not claim future rentals, compensation charges or any other charges from him, including traveling expenses and legal expenses. He also questioned the claim of interest at 24% p.a., as the second respondent lessee was governed by the Debt Relief Act.(d) THE second respondent made a counter claim for a sum of Rs.5,47,692/- He submitted that the lease agreement was entered on 28.8.1995. THE vehicle was surrendered on 16.9.1996 and hence the claim made on 27.1.2000 was barred by limitation. THE petitioner herein filed a separate counter. Apart from contending that the claim was barred by limitation, he took the stand that he had not executed any document guaranteeing the payment of amount under the lease agreement.(e) Upon hearing both sides the arbitrator passed an award directing the second respondent herein and the petitioner jointly and severally to pay to the first respondent herein a sum of Rs.6,94,450/- with interest at 18% p.a. from 27.1.2000 till the date of realization with costs.

(3.) IN support of his contention as to lack of jurisdiction of the Arbitrator to bind the petitioner, learned counsel placed reliance of the decisions in sukaluram Gond v. State of M.P. and Others (1994) 5 SCC 570 and Dharma Pratishthanam v. Madhok Construction (P) Ltd. AIR 2005 SC 214: (2005) 9 SCC 686: (2005) 1 MLJ 70. He also referred to Hind. Paper Corpn. Ltd., v. Keneilhouseangami 68 company cases 361 and ITC Classic Finance Ltd. V. Grapco Mining and Co. Ltd. AIR 1997 Calcutta 397 to impress on the fact that when the guarantee agreement is an independent agreement, in the absence of a specific clause for referring to arbitration, the award passed as against this petitioner as a guarantor is totally unjustifiable. He pointed cut that the acquiescence to the proceedings before the arbitrator does not confer jurisdiction to pass an award on the petitioner.