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Escorts Finance Ltd. v. Mohd. Hanif D. Khan
Factual and Procedural Background
The appellant, a leading finance company engaged in lease financing and hire purchase of vehicles, had entered into a hire purchase agreement with the respondent for a Tata Safari vehicle. The agreement was for a period of 36 months, with the appellant disbursing Rs. 5,60,000 to the respondent, repayable in 36 monthly installments of Rs. 22,440 each. The respondent defaulted on payments, accumulating arrears of Rs. 6,30,690 plus overdue interest. The appellant issued a notice demanding payment, which went unheeded. Subsequently, invoking the arbitration clause in the agreement, the appellant appointed a sole Arbitrator. The appellant filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking the appointment of a Receiver to seize and take possession of the vehicle. The learned Single Judge dismissed this petition on the ground that since an Arbitrator had been appointed and was empowered to appoint a Receiver if necessary, the Court need not intervene. The appellant appealed this dismissal.
Legal Issues Presented
- Whether the Court has the power to appoint a Receiver under Section 9 of the Arbitration and Conciliation Act, 1996, notwithstanding the appointment of an Arbitrator empowered to do so.
- Whether the learned Single Judge was correct in summarily dismissing the petition for appointment of a Receiver solely because an Arbitrator had been appointed.
Arguments of the Parties
Appellant's Arguments
- The power to appoint a Receiver vests both in the Court and the Arbitrator.
- The learned Single Judge erred in summarily dismissing the petition without considering its merits.
- Reliance on the Supreme Court decision in Sundaram Finance Ltd. v. Nepc India Ltd. which recognizes the Court's power under Section 9 to pass interim orders during arbitration proceedings.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Sundaram Finance Ltd. v. Nepc India Ltd. (1999) 2 SCC 479 | Clarification that Section 9 of the Arbitration and Conciliation Act, 1996, empowers the Court to pass interim orders during arbitration proceedings, including appointment of a Receiver, despite the Arbitrator's powers under Section 17 not being enforceable as Court orders. | The Court held that the learned Single Judge should not have summarily dismissed the petition for appointment of Receiver merely because an Arbitrator had been appointed, and directed reconsideration in light of this precedent. |
Court's Reasoning and Analysis
The Court examined the provisions of Section 9 and Section 17 of the Arbitration and Conciliation Act, 1996, alongside the Supreme Court's ruling in Sundaram Finance Ltd. v. Nepc India Ltd.. It noted that while the Arbitrator has the power to appoint a Receiver under Section 17, such orders cannot be enforced as Court orders. Therefore, the Court under Section 9 retains the power to grant interim relief, including appointment of a Receiver, even after arbitration proceedings have commenced. The Court found that the learned Single Judge erred in dismissing the petition solely on the basis that an Arbitrator had been appointed. The Court emphasized that the petition merited consideration on its merits and not summary dismissal. Consequently, the impugned order was set aside and the matter was remanded for fresh consideration in accordance with the law and the Supreme Court's observations.
Holding and Implications
Holding: The appeal is allowed, the impugned order dated 26th April, 2001 is set aside, and the petition for appointment of Receiver is restored for fresh consideration by the learned Single Judge in accordance with applicable law and Supreme Court precedent.
Implications: The decision clarifies that the Court retains jurisdiction under Section 9 of the Arbitration and Conciliation Act, 1996 to grant interim relief such as appointment of a Receiver even after an Arbitrator has been appointed. The ruling prevents summary dismissal of such petitions on the ground of Arbitrator's existence alone and requires courts to consider the merits of interim relief applications. No new precedent was set; rather, the Court applied established Supreme Court authority to ensure proper procedural fairness and substantive consideration of interim relief in arbitration-related disputes.
San Jay Kishan Kaul, J.:—
CM 505/2001
2. This is an application filed by the appellant under Section 151 of the Code of Civil Procedure to exempt him from filing certified copies of the annexures which have been filed for the purpose of reference. In view of the facts stated this application is allowed and stands disposed of.
FAO (OS) 206/2001 and CM 506/2001
3. The present appeal arises from an order passed by the learned Single Judge dated 26th April, 2001 in OMP 119/2001 whereby the petition filed by the appellant under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) for appointment of Receiver has been dismissed. The appellant has filed the aforesaid petition stating that the appellant is in the business of the lease financing and hire purchase of vehicles, equipments and machineries and is a leading finance company of the country. The appellant had entered into a hire purchase agreement with the respondent whereby the respondent was the hirer of one Tata Safari bearing registration No. MHK06.F7188 and the period of agreement was 36 months. A sum of Rs. 5,60,000 was disbursed by the appellant to the respondent under the hire purchase agreement to be repaid back by the respondent in 36 monthly instalments of hire charges of equal amount of Rs. 22,440.
4. The respondent defaulted in the timely payment of the instalments and the arrears stand accumulated to be Rs. 6,30,690 apart from overdue interest charges. The appellant issued a notice dated 19th July, 2000 to the respondent calling upon to make the payment. Despite service of the notice, the respondent had not made the payment. In view of these facts and in view of Clause 21 of the hire purchase agreement providing for Arbitration in case of disputes the appellant vide notice dated 19th July, 2000 had invoked the Arbitration clause in terms of the agreement and appointed Shri H.N Gupta, Advocate, as the sole Arbitrator in respect of the disputes to be adjudicated. The appellant sought the appointment of a Receiver to forthwith seize the vehicle and take possession thereof from the respondent. This relief was declined by the learned Single Judge in terms of the order dated 26th April, 2001 on the ground that the appellant had already appointed Arbitrator and since the Arbitrator is empowered to appoint a Receiver, if necessary, there was no need for the Court to pass any order for the appointment of the Receiver. Mr. B.L Wali, learned counsel for the appellant has relied on the judgment of the Supreme Court in the case of Sundaram Finance Ltd. v. Nepc India Ltd., (1999) 2 SCC 479 : AIR 1999 SC 565 : 1999 (1) Arb. LR 305 (SC), and more specifically para 12 which reads :
“12. The reading of Section 21 clearly shows that the Arbitral proceedings commence on the date on which a request of a dispute to be referred to Arbitration is received by the respondent. It is in this context that we have to examine and interpret the expression “before or during Arbitral proceedings” occurring in Section 9 of the 1996 Act. We may here observe that though Section 17 gives the Arbitral Tribunal the power to pass orders the same cannot be enforced as orders of a Court. It is for this reason that Section 9 admittedly gives the Court power to pass interim orders during the Arbitration proceedings.”
5. It is the contention of learned counsel for the appellant that power to appoint Receiver vests both in the Court as well as the Arbitrator but in view of the observations made by the Hon'ble Supreme Court in Sundaram Finance Ltd. v. Nepc India Ltd. (supra), it was a fit case where learned Single Judge should have exercised the power to appoint the Receiver. We are in agreement with the submissions of the learned counsel for the appellant that the case did not merit summary dismissal and it was necessary for the learned Single Judge to have considered the merits of the matter for the appointment of the Receiver as prayed by the appellant. The mere fact that Arbitrator had been appointed, who also could exercise power to appoint a Receiver could not have been made a ground to summarily dismiss the petition. The appeal is, therefore, allowed and the impugned order dated 26th April, 2001 is set aside. The petition is directed to be restored to its original number. Learned Single Judge will now proceed to decide the OMP in accordance with the law and in terms of the observations of the Hon'ble Supreme Court in Sundaram Finance Ltd. v. Nepc India Ltd. (supra). Appellant to appear before the learned Single Judge on 9th May, 2001.
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