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Sundaram Finance Limited And Another v. T. Thankam .
Factual and Procedural Background
The respondent, T. Thankam, filed a civil suit seeking a decree of injunction to restrain M/s. Sundaram Finance Limited and its agents from repossessing or interfering with her use of an Ambassador car (Registration No. KL-11-AA-1473) purchased with a loan from the appellant. Relying on an arbitration clause contained in the loan agreement, the appellants filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 requesting that the dispute be referred to arbitration.
The trial court rejected the Section 8 application on 21 June 2010, holding that the alleged forcible repossession was “per se illegal” and against public policy; therefore, the civil court could grant injunctive relief notwithstanding the arbitration clause. The High Court of Kerala affirmed that decision on 17 March 2014, reasoning that Section 8 does not oust the civil court’s jurisdiction to grant interim or injunctive relief under the Code of Civil Procedure and the Specific Relief Act. Aggrieved, the finance company appealed to the Supreme Court of India.
Legal Issues Presented
- Whether, once a party files a duly compliant application under Section 8 of the Arbitration and Conciliation Act, 1996, a civil court is obliged to refer the parties to arbitration in accordance with their agreement.
- Whether a civil court can bifurcate a cause of action or retain jurisdiction to grant injunctive relief when the underlying contract contains a valid arbitration clause.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539 | Language of Section 8 is peremptory; courts must refer parties to arbitration when prerequisites are met. | Used to emphasise that referral to arbitration is mandatory once an application under Section 8 is properly made. |
| Hindustan Petroleum Corp. Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC 503 | Civil court’s only task, after a valid Section 8 application, is to refer the dispute to arbitration. | Reinforced the mandatory nature of referral and absence of residual matters for the civil court. |
| Branch Manager, Magma Leasing & Finance Ltd. v. Potluri Madhvilata, (2009) 10 SCC 103 | Restates that no discretion is left with the court once Section 8 prerequisites are satisfied. | Cited to underline that courts have “no option” but to allow the Section 8 request. |
| Sukanya Holdings (P) Ltd. v. Jayesh Pandya, (2003) 5 SCC 531 | Bifurcation of cause of action between arbitral tribunal and civil court is not permissible under Section 8. | Relied on to reject the trial court’s and High Court’s attempt to split injunctive relief from arbitrable disputes. |
| Orix Auto Finance (India) Ltd. v. Jagmander Singh, (2006) 2 SCC 598 | Repossession clauses are not per se opposed to public policy unless shown to be unconscionable. | Used to rebut the trial court’s “public policy” ground for refusing arbitration. |
Court's Reasoning and Analysis
1. The Supreme Court noted that Clause 22(a) of the loan agreement unequivocally requires “all disputes” to be settled by arbitration, and that the appellant’s Section 8 application was filed before submission of any statement on the merits.
2. Citing authoritative precedents, the Court reiterated that Section 8 employs mandatory language: once its conditions are fulfilled, the civil court must refer the parties to arbitration; it cannot examine the merits or retain parts of the dispute.
3. The trial court’s view that injunctive relief was necessary to prevent an act contrary to public policy was found inconsistent with Orix Auto Finance, which permits contractual repossession clauses unless proven unconscionable.
4. The High Court’s reliance on Section 5 of the Arbitration Act and Order XXXIX CPC to uphold jurisdiction was characterised as a misunderstanding: the correct inquiry is whether jurisdiction has been ousted by a special statute, not whether some residual jurisdiction remains.
5. The Court rejected the bifurcation approach adopted below, stressing that splitting claims between arbitration and civil proceedings frustrates the Act’s objective of speedy, cost-effective dispute resolution and risks conflicting decisions.
6. Applying the maxim generalia specialibus non derogant, the Court held that the special scheme of the Arbitration Act overrides general civil remedies once an arbitration agreement and a valid Section 8 application exist.
Holding and Implications
Holding: The orders of the trial court (21 June 2010) and the High Court (17 March 2014) were set aside. The matter was remitted to the trial court to pass fresh orders on the Section 8 application within two months.
Implications: The decision reinforces the mandatory duty of civil courts to refer parties to arbitration when Section 8 prerequisites are met and discourages attempts to carve out injunctive or other reliefs for separate adjudication. While no new legal doctrine was formulated, the ruling underscores strict adherence to the Arbitration and Conciliation Act, furthering its objective of minimising judicial intervention.
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IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2079 OF 2015
(Arising from S.L.P. (C) No. 20140/2014) M/s. Sundaram Finance Limited and another … Appellant (s) Versus
T. Thankam … Respondent (s)
J U D G M E N T
KURIAN, J.:
Leave granted.
2. Once an application is duly filed in terms of Section 8 of The Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'Arbitration Act') before the civil court, what should be the approach of the court, is the short question arising for consideration in this case.
3. In a suit for injunction filed by the respondent, the prayer made was to restrain the first and second defendant institutions and their men from illegally taking away from the possession of plaintiff or her employee, or interfering with the use and enjoyment of ambassador or causing damage to the
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car bearing registration number KL-11-AA-1473 in the ownership and possession of the plaintiff by way of a decree of injunction. The car was purchased on loan granted by the appellant.
4. Duly complying with the procedure under Section 8 of the Arbitration Act, the appellant filed an application bringing to the notice of the trial court that in view of the agreement for arbitration between the parties regarding resolution of the disputes, the court did not have jurisdiction to try the case and the parties were to be directed to the process of arbitration in terms of the agreement. The trial court, by order dated 21.06.2010, declined the relief holding that:
"… Even though clause 22 of the Ext.A1 agreement provides that of disputes should be referred to arbitration this will not prevent the plaintiff from approaching this court especially when one of the parties to the agreement are trying to commit an act opposed to public policy and per se illegal. The arbitration clause in the agreement cannot be put forward as a shield when one of the parties to the agreement commit an act opposed to public policy. In such circumstances the plaintiff can seek protection under the common civil law. In this matter what the respondent alleged that the petitioners are trying to take forcible possession of the vehicle which is being run by her. Her relief sought for in the plaint is only against the illegal acts of the defendants. The apprehended acts of the
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plaintiff are against the public policy and per se illegal and hence this suit is maintainable. …"
5. The appellant pursued the matter before the High Court. By the impugned order dated 17.03.2014, it was held as follows:
"… Going by Section 8 of the Arbitration and Conciliation Act, I am of the opinion that mere inclusion of an arbitration clause in the agreement does not bar or cause to oust the jurisdiction of the civil court provided under Section 9 of the Code of Civil Procedure. The above view is further supported by Section 5 of the Arbitration and Conciliation Act, which says that "in the matters governed by first part of the Arbitration and Conciliation Act, no judicial authority shall intervene except where so provided in the first part". It means that jurisdiction of the Civil Court is not completely ousted by Section 8 of the Arbitration and Conciliation Act. Section 5 of the Arbitration and Conciliation Act does not bar the exercise of general power of the civil court to grant interim relief including specific injunctive relief under Order XXXIX of the CPC and the Specific Relif Act. …"
6. Aggrieved, the appeal.
7. Heard the learned counsel appearing for the appellants. None appeared for the respondent.
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8. Two clauses of Annexure-P1-Loan Agreement between the parties, executed on 29.06.1997, are relevant for the consideration of the disputes. Clause 14.6 reads as follows:
"14.6. Notwithstanding anything contained in this Agreement, the Lender shall be entitled to reposess the hypothecated Asset, whether the entire Loan Amount has been recalled or not, whenever, in the absolute discretion of the Lender, there is likelihood of the dues of the Lender not being paid by the borrower and or/the Asset is likely to be transferred by the Borrower to defeat the security and or payment of the due any units of the Lender."
9. Clause 22(a), as to the extent relevant, reads as follows:
"22. (a) All disputes, differences of any claim arising out of this Agreement whether during its subsistence or thereafter shall be settled by arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996, or any statutory amendments thereof and shall be referred to the sole Arbitration of an Arbitrator nominated by the Managing Director/Joint Managing Director of the Lender. The award given by such an Arbitrator shall be final and binding on the Borrower to the agreement."
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10. Once there is an agreement between the parties to refer the disputes or differences arising out of the agreement to arbitration, and in case either party, ignoring the terms of the agreement, approaches the civil court and the other party, in terms of the Section 8 of the Arbitration Act, moves the court for referring the parties to arbitration before the first statement on the substance of the dispute is filed, in view of the peremptory language of Section 8 of the Arbitration Act, it is obligatory for the court to refer the parties to arbitration in terms of the agreement, as held by this Court in P. Anand Gajapathi Raju and others v. P.V.G. Raju (Dead) and others1.
11. The position was further explained in Hindustan Petroleum Corporation Limited v. Pinkcity Midway Petroleums2. To quote:
"14. This Court in the case of P. Anand Gajapathi Raju v. P.V.G. Raju has held that the language of Section 8 is peremptory in nature. Therefore, in cases where there is an arbitration clause in the agreement, it is obligatory for the court to refer the parties to arbitration in terms of their arbitration agreement and nothing
2 (2 003) 6 SCC 503
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remains to be decided in the original action after such an application is made except to refer the dispute to an arbitrator. Therefore, it is clear that if, as contended by a party in an agreement between the parties before the civil court, there is a clause for arbitration, it is mandatory for the civil court to refer the dispute to an arbitrator. In the instant case the existence of an arbitral clause in the Agreement is accepted by both the parties as also by the courts below but the applicability thereof is disputed by the respondent and the said dispute is accepted by the courts below. Be that as it may, at the cost of repetition, we may again state that the existence of the arbitration clause is admitted. If that be so, in view of the mandatory language of Section 8 of the Act, the courts below ought to have referred the dispute to arbitration."
12. In Branch Manager, Magma Leasing and Finance Limited and another v. Potluri Madhvilata and another3,
the position has been restated holding that no option is left to the court, once the pre-requisite conditions of Section 8 are fully satisfied.
13. The attempt of the trial court and the approach made by the high court in bifurcating the cause of action, is fallacious. It would only lead to delaying and complicating the process. The said issue is also no more res integra. In Sukanya
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Holdings (P) Limited v. Jayesh Pandya and another4 at paragraphs-16 and 17, it was held as follows:
"16. The next question which requires consideration is — even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act. In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action, that is to say, the subject-matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject-matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject-matter of an action brought before a judicial authority is not allowed.
17. Secondly, such bifurcation of suit in two parts, one to be decided by the Arbitral Tribunal and the other to be decided by the civil court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forums."
14. In Orix Auto Finance (India) Limited v. Jagmander Singh and another5, referring to public policy, this Court has
5 (2006) 2 SCC 5 98
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taken the view that if agreements permit the financer to take possession of the finances vehicles, there is no legal impediment on such possession being taken, unless the contract is held to be unconscionable or opposed to public policy".
15. Once an application in due compliance of Section 8 of the Arbitration Act is filed, the approach of the civil court should be not to see whether the court has jurisdiction. It should be to see whether its jurisdiction has been ousted. There is a lot of difference between the two approaches. Once it is brought to the notice of the court that its jurisdiction has been taken away in terms of the procedure prescribed under a special statue, the civil court should first see whether there is ouster of jurisdiction in terms or compliance of the procedure under the special statute. The general law should yield to the special law - generalia specialibus non derogant. In such a situation, the approach shall not be to see whether there is still jurisdiction in the civil court under the general law. Such approaches would only delay the resolution of disputes and complicate the redressal of grievance and of course unnecessarily increase the pendency in the court.
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16. The order dated 21.06.2010 passed by the trial court and order dated 17.03.2014 passed by the High Court, are set aside. The trial court is directed to pass fresh orders on the application filed by the appellant-defendant under Section 8 of the Arbitration Act. The needful shall be done within a period of two months from the date of receipt of this order.
17. The appeal is disposed of as above. There shall be no order as to costs.
..…….…..…………J.
(M.Y. EQBAL)
..……………………J.
(KURIAN JOSEPH)
New Delhi;
February 20, 2015.
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ITEM NO.1B COURT NO.11 SECTION XIA
[for judgment]
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
C.A. No. 2079 of 2015 @ Petition(s) for Special Leave to Appeal (C) No(s). 20140/2014
(Arising out of impugned final judgment and order dated 17/03/2014 in WP No. 21076/2010 passed by the High Court of Kerala At Ernakulam)
M/S SUNDARAM FINANCE LIMITED AND ANR. Petitioner(s)
VERSUS
T. THANKAM Respondent(s) Date : 20/02/2015 This appeal was called on for judgment today. For Petitioner(s) Mr. Balaji Srinivasan,Adv. For Respondent(s)
Hon'ble Mr. Justice Kurian Joseph pronounced the judgment of the Bench comprising Hon'ble Mr. Justice M.Y. Eqbal and His Lordship.
Leave granted.
Appeal is disposed of in terms of signed reportable judgment. No costs.
(INDU POKHRIYAL) (PARDEEP KUMAR)
COURT MASTER AR-cum-PS
[SIGNED REPORTABLE JUDGMENT IS PLACED ON THE FILE]
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