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M/S. Nepc India Ltd., Chennai v. M/S. Sundaram Finance Ltd., Chennai.
Factual and Procedural Background
The petitioner availed financial assistance from the respondent and entered into a hire purchase agreement dated 25.9.1995 for the supply of two Wind Turbine generators, agreeing to pay in instalments. Upon default in payment, the respondent invoked the arbitration clause and sought the appointment of a Commissioner by the lower Court to take possession of the machineries. The Commissioner took possession and handed over the machineries to the respondent on 26.4.1998, prior to the filing of revision petitions challenging this action. The petitioner had also expressed willingness to surrender the machineries by notice dated 1.4.1998, disputing only certain claims related to land value. The petitioner filed revision petitions which were initially allowed by the Court on 22.6.1998, holding that the lower Court’s order appointing the Commissioner and seizing the machineries was without jurisdiction under Section 9 of the Arbitration and Conciliation Act. However, the Supreme Court set aside this order, holding that interim relief under the Arbitration and Conciliation Act is maintainable even before appointment of an arbitrator, and directed the Court to consider the matter on merits.
Legal Issues Presented
- Whether the lower Court had jurisdiction to appoint a Commissioner and order seizure of machineries under Section 9 of the Arbitration and Conciliation Act prior to appointment of an arbitrator.
- Whether the seizure and possession of machineries by the respondent without prior notice caused manifest injustice to the petitioner under Article 227 of the Constitution of India.
- Whether the respondent’s continued possession of the machineries pending arbitration proceedings is lawful and proper.
- Whether the principles of natural justice require prior notice before seizure of machineries when the contract provides otherwise.
Arguments of the Parties
Petitioner’s Arguments
- The lower Court lacked jurisdiction to entertain the original petition for appointment of arbitrator or interlocutory relief under Section 9 after enactment of the Arbitration and Conciliation Act, contending that only the High Court has such jurisdiction.
- No notice was issued to the petitioner before seizure of machineries, violating principles of natural justice.
- The seizure amounted to execution of an award before it was passed, which is impermissible.
Respondent’s Arguments
- The hire purchase agreement expressly permits seizure of machineries without prior notice upon default by the petitioner.
- The petitioner had itself expressed willingness to surrender the machineries, mitigating any claim of manifest injustice.
- Even assuming lack of jurisdiction of the lower Court, possession by the respondent is lawful as per contract terms and subsequent arbitration proceedings.
- Respondent is entitled to maintain possession of the machineries as receiver pending arbitration, preserving their condition without alienation or encumbrance.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| D.N. Banerji v. P.R. Mukherjee, AIR 1953 SC 58 | High Court interference under Articles 226 and 227 only in case of grave miscarriage of justice or flagrant violation of law. | The Court applied this principle to hold that absent manifest injustice, interference with the lower Court’s order is unwarranted. |
| Chandavarkar Sita Ratna Rao v. Ashalata, AIR 1987 SC 17 | High Court may set aside findings of fact only if perverse or unsupported by evidence. | Used to reinforce the standard for intervention under Articles 226 and 227, confirming no manifest injustice was shown. |
| Nandita Bose v. Ratanlal Nahata, AIR 1987 SC 1947 (100 LW 1169) | Petitioner must prove manifest injustice to invoke Article 227 jurisdiction. | The Court relied on this precedent to emphasize the burden on petitioner to show injustice, which was not established. |
| State of U.P. v. District Judge, Unnao, AIR 1984 SC 1401 | Article 227 jurisdiction is intended to advance justice and not to thwart it. | Supported the Court’s approach to dismiss revision petitions where no injustice was evident. |
| R. Paramasivam v. The Tamil Nadu Industrial Investment Corporation Ltd., 1993 Writ L.R 273 (Full Bench) | Principles of natural justice do not necessarily require notice of seizure where contract provides otherwise. | Applied to hold that no prior notice was necessary before seizure of machineries under the hire purchase agreement. |
| Sri Rama Machinery Corporation Ltd. v. Standard Chartered Bank, 1999 (1) L.W. 267 | Reinforced the principle that contractual provisions excluding notice of seizure are valid. | Followed to support the conclusion that seizure without notice was lawful and did not cause injustice. |
| Sundaram Finance Ltd. v. Nepc India Ltd., 1999-3-L.W. 335 (Supreme Court) | Interim relief under Arbitration and Conciliation Act is maintainable even before appointment of arbitrator; old Arbitration Act provisions not similar. | Supreme Court set aside earlier order and directed merits to be considered, guiding the present Court’s approach. |
Court's Reasoning and Analysis
The Court first acknowledged the Supreme Court’s direction to consider the case on merits after setting aside the earlier order that found jurisdictional defects under Section 9 of the Arbitration and Conciliation Act. The Court examined the hire purchase agreement which explicitly permits the respondent to take possession of machineries without prior notice upon default by the petitioner. The petitioner had admitted default and expressed willingness to surrender the machineries. The Court held that no manifest injustice was caused by the seizure or possession as the contractual terms were clear and the petitioner consented to surrender.
Regarding the jurisdictional challenge, the Court recognized the petitioner’s contention that only the High Court can grant interlocutory relief under the Arbitration and Conciliation Act post-enactment. However, the Court declined to grant relief on this ground as the petitioner failed to demonstrate any manifest injustice, and possession by the respondent was lawful under the contract and subsequent arbitration proceedings.
The Court also addressed the absence of prior notice before seizure, relying on precedents that contractual exclusion of notice and the principle of natural justice are to be considered in context. It concluded that no notice was required and the seizure was valid. The Court directed that the respondent continue possession as receiver, maintaining and preserving the machineries without alienation, with periodic reporting to the arbitrator, subject to the final arbitration award.
Holding and Implications
The Court DISMISSED all the revision petitions with directions that the respondent shall continue to hold possession of the machineries as receiver and maintain them pending the arbitration proceedings.
The direct effect is that the respondent's possession of the machineries is upheld and regulated by the Court until the arbitration award is passed. No manifest injustice was found to the petitioner, and no new legal precedent was established by this decision.
I passed an order allowing the revision petitions on 22.6.1998 I took the view that under Section 9 of the Arbitration and Conciliation Act, without taking any proceedings for appointment of arbitrator, proceedings cannot be issued under Section 9 of the Act. I held that the order of lower Court* in appointing Commissioner and seizing the machineries are all without jurisdiction and I set aside the order.
2. My order has been set aside by the Honourable Supreme Court in Civil Appeals 141 to 143 of 1999. (reported in Sundaram Finance Ltd. v. Nepc India Ltd., 1999-3-L.W. 335).their Lordships of Supreme Court held that the provisions under the old Arbitration Act and Arbitration and Conciliation Act are not similar and the application is maintainable for getting interim relief even before an arbitrator is appointed to arbitrate the dispute. Honourable Supreme Court set aside my order and directed this Court to consider the case on merits. Such direction was necessary since I have not considered the merits of the case.
3. The relevant facts are that petitioner has availed financial assistance from the respondent and also entered into hire purchase agreement regarding supply of two Wind Turbine generators. The agreement is dated 25.9.1995, wherein petitioner agreed to pay the amount in various instalments and in case of default, certain consequences are also to follow.
4. It is seen that there were correspondence between petitioner and respondent regarding default. It could be seen therefrom that there was default in payment of instalments. Respondent therefore invoked arbitration clause and moved the lower Court for appointment of Commissioner to have possession of the machineries. It could be seen that long before the revisions are filed, Commissioner visited the property and has taken possession of the machineries and the same was also handed over to respondent on 26.4.1998 It is evident from the report of the Commissioner which is among the typed set of papers. The revisions were presented on 23.4.1998 and due to some defects it had to be represented, which was done only on 29.4.1998 So, on the date of revisions, the machineries came to be possessed by the respondent.
5. In view of the direction by Honourable Supreme Court, I have to consider the merits of the case and being a revision under Article 227 of the Constitution of India, I have to consider whether in the impugned order there is any manifest injustice to the petitioner.
6. As early as in AIR 1953 S.C 58 (D.N Banerji v. P.R Mukherjee), it is held that unless there is any grave miscarriage of justice or flagrant violation of law calling for intervention, it is not for the High Court under Article 226 or 227 of the Constitution of India, to interfere.
7. In AIR 1987 S.C.I 17 (Chandavarkar Sita Ratna Rao v. Ashalata), in para 16 of the Judgment, their Lordships held thus,
“…. It is well-settled that the High Court can set aside or ignore the findings of fact of an appropriate Court if there was no evidence to justify such a conclusion and if no reasonable person could possibly have come to the conclusion which tne Courts below have come or in other words a finding which was perverse in law…”
Their Lordships thereafter following the decision in D.N Banerji's case in AIR 1953 SC 58 (cited supra), held that
“… Unless there was any grave miscarriage of justice or fragrant violation of law calling for intervention it was not for the High Court under Arts. 226 and 227 of the Constitution to interfere,…”
8. Similar is the case in the decision reported in AIR 1987 S.C 1947=100 L.W 1169 (Nandita Bose v. Ratanlal Nahata), wherein their Lordships said that petitioner has to prove manifest injustice when he comes to Court under Article 227 of the Constitution.
9. In AIR 1984 S.C 1401 {State ofU.P v. District Judge, Unnao), their Lordships said that the power under Article 227 of the Constitution was devised to advance justice and not to thwart it.
10. If we go by the facts alone, one thing that is admitted is, petitioner has committed default of payment of instalment dues under hire purchase agreement, which entitles respondent to move the machinaries even without notice. Clause 9 of the Hire Purchase agreement read thus,
“(9) In case the Hirer shall during the continuance of this Agreement do or suffer any of the following acts of things viz. either,
a) fail to pay any of the hiring instalments within the stipulated time whether demanded or not.
b) dies, become insolvent or compound with his creditors.
c) the hirer being a limited company shall pass a resolution for voluntary winding up or shall have a petition for winding up presented against it or if a receiver shall be appointed of its undertaking.
d) pledge or sell or attempt to pledge or sell or part with possession of or otherwise alienate or transfer the Machinery.
e) do or suffer any act or thing whereby or in consequence of which the said Machinery may be distrained or taken in execution under legal process, or any public authority.
f) fail to keep the Machinery insured for comprehensive risks during the period of Agreement.
g) fail to pay to the Government or any Public Authority and taxes or surcharge due in respect, of the Machinery.
h) break or fail to perform or observe any conditions on his/her/their part herein contained.
then and on the occurrence of any such event, the rights of the hirer under this agreement shall forthwith stand determined ipso facto without any notice to the Hirer and all the Instalments previously paid by the Hirer shall be absolutely forfeited to the owner who shall thereupon be entitled to enter any house or place where the said Machinery may men be, remove and retake possession of the same and to sue for all the instalments due and for damage for breach of the Agreement and for all the costs of retaking possession of the said Machinery and all costs occasioned by the Hirer's default.”
11. Application before lower Court was filed on 3.4.1998 and the same was taken up and numbered only on 7.4.1998 Even though there is some irregularity in the order of lower Court as if it has issued notice to the petitioner and was absent, I do not find that any manifest injustice has been done to petitioner in this case. In CMP 6698 of 1998 in CRP 1421 of 1998, an affidavit has been filed by petitioner and in para 4 of the affidavit it is said thus,
“…. I state that there was a severe financial crunch all over India, as and from June 1996, which affected the Corporate bodies like the petitioner and the petitioner was not able to collect their dues from their customers and pay the respondent. The petitioner was not able to make payment to the respondent and therefore, decided to surrender the said Wind Turbine Generators on receiving the amount due and payable by the Respondent to the petitioner and sent a notice dated 1.4.1998 terminating the said hire purchase agreement and agreed to handover possession of the assets mentioned in the schedule to the hire purchase agreement dated 25.9.1995 along with the land over which the Wind Turbine Generators were erected on condition that the respondent pays a sum of Rs. 2,10,00,000/- being the cost of the land and other charges as mentioned in the statement of account enclosed along with the said notice dated 1.4.1998”
It could be seen from the affidavit that petitioner was prepared to surrender machineries to respondent, and they wanted to mitigate the liability as far as possible. It is admitted therein that on 1.4.1998 i.e, before O.P was filed before lower Court, petitioner expressed its intention to surrender machineries. There was a dispute between the parties as to whether respondent is bound to pay land value under the claim put forward by petitioner. At this stage, we are only concerned whether the seizure of machineries caused injustice to petitioner. As found earlier, Hire Purchase agreement enables respondent to take possession without any notice and petitioner also agrees to surrender those machineries. Machineries are also by orders of the Court, come into the possession of respondent, I do not find that any manifest injustice has been caused to petitioner by the action of respondent.
12. It is submitted by learned Senior Counsel that no notice was issued before seizure. I do not think that any such notice is also required when the contractual terms excludes the issuance of any prior notice. Apart from the same, a Full Bench of this Court in the decision reported in 1993 Writ L.R 273 (R. Paramasivam v. The Tamil Nadu Industrial Investment Corporation Ltd.) held that in similar cases, the principles of natural justice have no application. The Full Bench held, “there is no necessity for notice of seizure before the lorry was seized.” Their Lordships also considered that the principles of natural justice cannot be stretched too much and its applicability will have to be considered taking into consideration the facts and circumstances of each case. According to me, if the contract itself provides for seizure of machinery without notice, in case of default, there is no necessity for issuing any prior notice. In this case, petitioner himself offered to surrender entire machineries. I have followed the Full Bench decision in the decision reported in 1999 (1) L.W 267 (Sri Rama Machinery Corporation Limited, etc. v. Standard Chartered Bank, etc. & another).
13. At this juncture, learned Senior Counsel for petitioner submitted that the lower Court had no jurisdiction to entertain the Original Petition and that ground will be sufficient to invoke Article 227 of Constitution of India. Learned Senior Counsel submitted that after Arbitration and Conciliation Act has been enacted, only High Court has jurisdiction to appoint Arbitrator and therefore even an interlocutory relief can only be granted by the High Court. I find force in the said contention. But, at the same time, I do not think that I should take into consideration the above fact when there is no manifest injustice caused to petitioner. The question of jurisdiction was not taken before mis Court or before the Honourable Supreme Court. Assuming that lower Court did not have any jurisdiction what will be the consequence? At the most, it will be that respondent was in possession of those machineries on the basis of the order of Court which does not have any jurisdiction. If respondent can take possession even without notice and even without intervention of Court, can it be said that continued possession of machineries is without authority? I do not think so. That apart, it is admitted by both sides that basing the directions of Honourable Supreme Court, arbitration proceedings have also been initiated and petitioner also put forward their claim before the arbitrator. This Court can take into consideration the subsequent events also while considering the relief to be granted. Merely because petitioner did not urge the question before Court, I should not mean to say that it is waived. By mere waiver, Court will not get jurisdiction. But I am not inclined to grant any relief to petitioner on that contention since there is no manifest injustice, since Owner of the machineries has taken possession of the same in terms of the agreement.
14. An argument was put forward by learned counsel for petitioner that even before award was passed, petitioner has now obtained possession of machineries and the same is in effect execution of an award before it is passed and they are not waiting for award. Lower Court has also not passed any order under Section 9 of the Arbitration and Conciliation Act. The argument is that under Section 9, interlocutory order could be passed only for preserving interim custody of the property and no direction has been given by the lower Court in this case. After hearing counsel on both sides, to that extent some direction has to be given in this case.
15. Respondent is now in custody of all the machineries. It is now nearly 15 months since respondent is in possession of the machineries. Respondent is the owner of the machineries. The agreement also enables respondent to have possession of the machineries. Under these circumstances, I feel that respondent can continue in possession of those machineries. But at the same time when there is dispute and the arbitration proceedings are pending, it is only proper on the part of respondent to preserve and maintain those machineries, without alienating and encumbering the machineries. Now that arbitration proceedings have also commenced, I direct respondent to be in possession of those machineries as receiver and maintain and preserve the same till arbitration proceedings are over. Respondent may file statement about the condition of the machineries, its value, etc., before the Arbitrator once in every three weeks with a copy to petitioner. I further direct that the custody of those machineries with respondent will be subject to the award passed by the Arbitrator.
16. In the result, all the revision petitions are dismissed with above direction. No costs. Connected CMPs are also closed.
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