Mantras Green Resources Ltd & Ors v. Canara Bank

High Court of Bombay | Commercial Arbitration Application (L) No. 12570 of 2021

Background facts

  • Mantras Green Resources Ltd (Applicant), a company engaged in eco-friendly solutions for conservation of environment, executed a common hypothecation agreement (Agreement) with Canara Bank (Respondent) on December 19, 2017, wherein it was agreed that any dispute arising in connection with the Agreement would be referred to an Arbitrator or if there is no agreement reached, then to be referred to a panel of three Arbitrators, one appointed by each party and third selected by the two Arbitrators.
  • The Applicant availed facility from the Respondent amounting approximately INR 8.5 crore out of the total sanctioned facility of INR 20 crore. However, on account of numerous breaches committed by the Respondent, the Applicant suffered a loss amounting to INR 14,20,51,051.
  • Therefore, the Applicant invoked arbitration vide its notice dated April 9, 2021 wherein it demanded arbitration by clearly setting out the dispute and claimed that the sum of INR 14,20,51,051 with further interest at the rate of 12% payable to it. The Respondent received the said notice on April 15, 2021 but it did not accord any consent to the proposed name of the Arbitrator. Instead, the Respondent forwarded a reply on May 5, 2021 accusing the Applicant of raising sham defenses and raising untenable contentions.
  • In view of the above, the Applicant filed an Application under the Arbitration and Conciliation Act, 1996 before the High Court of Bombay (HC), seeking appointment of a Sole Arbitrator in terms of the clause contained in the Agreement.

Issue at hand?

  • Whether a dispute raised by a borrower which is ongoing before the Debt Recovery Tribunal can be parallelly instituted before the Civil Court?

Decision of the Court

  • Upon hearing the contentions of both the parties, the HC noted that it is the case of the Applicant, who is a borrower, that arbitration is the appropriate remedy to settle the disputes that have arisen with the Respondent under the Agreement, whereas the Respondent is opposing the invocation of arbitration on the ground that the dispute is non-arbitrable since the Debt Recovery Tribunal (DRT), being a special forum created under the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act), is adjudicating the dispute, and hence, the initiation of arbitration proceedings is not maintainable.
  • The HC then analyzed the provisions under the RDB Act, particularly pertaining to the powers of DRT and noted that Section 17 of the RDB Act bars the jurisdiction of any Court or authority in relation to the matter to be determined by the DRT. The HC placed reliance upon the decision in Bank of Rajasthan Ltd v. VCK Shares & Stock Broking Services Ltd1, wherein the Supreme Court analyzed Section 17 and 18 of the RDB Act and held that Section 17 of the RDB Act bars the jurisdiction of the Civil Court only in respect of applications filed by the bank or financial institution, and not by the borrower. Accordingly, the HC held that there is no provision in the RDB Act by which the remedy of a civil suit by the defendant in a claim by the bank is ousted and the jurisdiction of Civil Court to try a suit filed by the borrower against the bank or financial institution is not ousted, despite the fact that the bank or financial institution has approached the DRT for recovery of its debt.
  • While dealing with the issue of whether a suit filed by the borrower against a bank or financial institution is liable to be transferred and tried along with an application before the DRT, the HC clarified that the proceedings under the RDB Act will not be impeded in any manner by filing of a separate suit before the Civil Court. The Court stated that the borrower has both the options i.e., to file a civil suit or a counterclaim in the said proceedings before the DRT, as he deems to be expedient.
  • The HC further held that the Civil Court is duty bound under Section 8 of the Arbitration and Conciliation Act, 1996 to refer the matter to arbitration in the presence of an arbitration agreement between the parties. In light of this, the HC appointed an Arbitrator under Section 11 (6) of the Arbitration and Conciliation Act, 1996 considering the arbitration clause in the Agreement.

Ircon International Ltd v. Pioneer Fabricators Pvt Ltd

High Court of Delhi | FAO (Comm) 200/2022, CM Appl. 53724/2022 & CM Appl. 53724/2022; 2023 SCC OnLine Del 1811

Background facts

  • The Appellant has challenged the order passed by District Judge (Commercial Court), Shahdara, Karkardooma Delhi, rejecting the petition filed by the Appellant under Section 19 of the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act) read with Section 34 of the Arbitration and Conciliation Act, 1996 (Act).
  • The Appellant issued Purchase Order dated September 25, 2013 to the Respondent for supply, erection, testing & commissioning of 02 nos. 20 MT Mounded Underground LPG Storage Bullet & Pipeline for a rail coach factory at Rae Bareli (U.P).
  • The subject work was completed by July 21, 2015. The Respondent had also issued a 'No Claim Certificate' dated November 05, 2015, for INR 1,12,95,207, which was the agreed amount towards full and final payment between the parties.
  • The Respondent had applied for the registration under Section 8 of the MSMED Act and on July 25, 2016 got registered under the provisions of the MSMED Act.
  • The Respondent sent a legal notice dated February 02, 2017 to the Appellant wherein it admitted of having issued a 'No Claim Certificate' after having agreed on INR1,12,95,207 being the full and final payment, while claiming having received only an amount of INR1,01,81,349. The amount of INR11,13,858 was withheld by the Appellant subject to the Respondent submitting proof of actual tax paid by it under Clause 5.2 of the Conditions of Contract (entered between the parties).
  • Being aggrieved for non-payment of amount of INR 11,13,858, the Respondent lodged its claim with Micro and Small Enterprises Facilitation Council on December 11, 2018. Specifically, it had raised a claim of INR 36,49,707 towards deduction qua liquidated damages and INR 33,53,694.15 towards interest payable thereon.
  • Conciliatory process had failed and thus the matter was further referred to arbitration in September, 2019 wherein the Appellant was directed to pay an amount of INR 63,35,077 to the Respondent vide Award dated January 09, 2022.
  • The Award was challenged by the Appellant under Section 19 of the MSMED Act read with Section 34 of the Act before the District Judge, Commercial Court, Shahdara, Karkardooma, Delhi which was dismissed vide Order dated November 29, 2022 on the ground of lack of territorial jurisdiction to entertain the petition.
  • Hence, the instant FAO.
  • Submissions of the Appellant:
    • The District Court had accepted the fact that the MSMED Act has an overriding effect over the Act. However, on the issue of the jurisdiction, it had given primacy to the concept of 'seat of arbitration' over the mandate of Section 19 of the MSMED Act.
    • Section 19 of the MSMED Act allows filing of objection before 'any Court' having the jurisdiction, which includes both territorial and pecuniary jurisdiction. The District Court misinterpreted the provision when it held that Section 19 of the MSMED Act does not grant territorial jurisdiction. The words 'any Court' inserted by the Legislature under Section 19 of the MSMED Act, is not merely a surplusage. While referring to the judgment of the Supreme Court of India in Gujarat State Civil Supplies Corporation Ltd v. Mahakali Foods Pvt Ltd (Unit 2)2, the Appellant submitted that efforts should be made by the Courts to give effect to each and every word used by the legislature whilst interpreting a statute. Reliance was further placed on the judgment of the Constitutional Bench of the Apex Court in the case of Nath Devi v. Radha Devi Gupta3.
    • If the District Court had no jurisdiction to entertain the subject petition, then as a corollary it could not have exercised its jurisdiction to direct the release of the pre-deposit to the respondent.
    • The MSMED Act contemplates a statutory arbitration as compared to the Act in as much as the former Act, being a special statute, overrides the provisions of the Act, which is only a general act.
    • The MSMED Act is inconsistent with the Act and distinction had also been drawn between the provisions of the MSMED Act and the Act, to highlight the inconsistencies.
  • Submissions of the First Respondent:
    • The agreement that was executed between the parties did not have any arbitration clause.
    • The seat of arbitration was at Kanpur since the Respondent was a resident of Kanpur and the Award was rendered by the Facilitation Council at Kanpur. So, as a corollary, the challenge to the Award should be filed before the Court in Kanpur.
    • That the District Judge was right for directing the Appellant herein to release the pre-deposit amount in favour of the Respondent, on the ground that the District Judge did not have the territorial jurisdiction to entertain the challenge filed against the Award passed by the Facilitation Council at Kanpur.

Issue at hand?

  • Whether Courts in Delhi shall have the territorial jurisdiction to entertain the challenge against the Award passed by the Arbitrator at Kanpur, Uttar Pradesh?

Decision of the Court

  • Once the Arbitral Award is pronounced, and there is an exclusionary clause of jurisdiction agreed between the parties thereby agreeing upon the jurisdiction of only one Court in exclusion of others, the challenge initiated by the aggrieved party under the Act, even against an Award passed by the Facilitation Council under the MSMED Act will lie only before the Court upon which the parties have agreed to place exclusive jurisdiction.
  • Similar is the conclusion of the Division Bench of this Court in the case of Indian Oil Corporation Ltd v. FEPL Engineering (P) Ltd4, to the effect that arbitration proceedings undertaken before the Facilitation Council under Section 18 of the MSMED Act are undertaken at the 'venue' where the Facilitation Council is located.
  • The place of the arbitration continues to be the place over which the Court has exclusive jurisdiction, as agreed between the parties.
  • By operation of the provisions of the MSMED Act, only the procedure of constitution of the Arbitral Tribunal is obliterated in terms of the law laid down by the Supreme Court in the case of Gujarat State Civil Supplies Corporation Ltd v. Mahakali Foods Pvt Ltd (Unit 2) (supra). The same does not eclipse the agreement between the parties of foisting exclusive jurisdiction on a particular Court.
  • The judgments cited by the District Judge and the counsel for the Respondent also hold that the seat designated by the parties in an agreement shall determine the territorial jurisdiction of Courts to entertain a challenge to the Award, which is consistent with our holding in the preceding paragraphs, except that in this case, the proceedings held at Kanpur, where the facilitation council is situated, have been deemed a 'venue' which is distinct from the 'seat' that is Delhi, given that the parties have agreed to the jurisdiction of Courts in Delhi, which includes a challenge to the Award.
  • Appeal allowed with the Appellant's objections filed as OMP (COMM) 01/2022 to be reinstated on the file of the District Judge (Commercial Court), Shahdara, Delhi, for consideration on merits in accordance with the law.

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1. Civil Appeal Nos. 8972-8973/14

2. 2022 SCC OnLine SC 1492

3. (2005) 2 SCC 271

4. 2019 SCC OnLine Del 8007

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