There is no prohibition for a decree-holder to seek an order of arrest of the judgment-debtor from the execution Court before seeking attachment of his properties, holds the Madras High Court

The Madras High Court Bench at Madurai has held that there is no prohibition under Code of Civil Procedure (C.P.C.) for a creditor bank to seek a court order for arresting loan defaulters even before exercising the option of filing an application in the court concerned to seek attachment of their properties.

Madras High Court

Justice M. Duraiswamy passed the judgment in a civil revision petition filed by noted television personality Mr. N.S.S. Nellai Kannan challenging the order of arrest passed by the lower Court in an Execution Petition filed by his creditor-bank. 

The judgment of the Court will clea the decks for the arrest of Mr. N.S.S. Nellai Kannan and his son N.K. Arumugam for failing to repay a personal loan of Rs 5 lakhs obtained from the Tamilnad Mercantile Bank in the year 2003.

Observing that the third Additional District Sessions Court in Tirunelveli had rightly ordered the arrest of the loan defaulter and his son, the guarantor, on April 30, 2012, the Court directed the lower court to complete the execution proceedings within three months. The bank’s counsel, V. Karthikeyan, said the orator had taken the loan on December 13, 2003, and agreed to repay it in 60 equated monthly instalments of Rs 11,784, including 14.5 per cent interest per annum. His wife and son were the guarantors.

When he defaulted, the bank filed a civil suit before the District Court in Tirunelveli in December 2006 for recovering the principal and interest totalling Rs 6.52 lakh. Mr. N.S.S. Nellai Kannan contested the suit by accusing the bank of charging an exorbitant interest rate.

The District Court on July 1, 2010, decreed the suit in favour of the bank and directed the noted television personality Mr. N.S.S. Nellai Kannan to repay the amount along with 17.75 per cent interest per annum from the date of filing of the suit. It also ordered him to pay Rs 58,061 towards litigation expenses.

When Mr. Nellai Kannan did not comply with the order, the bank filed an execution petition in 2012 and sought direction to arrest him and his son and lodge them in a civil prison for recovery of the loan amount which had risen to over Rs 10.62 lakh due to non-payment for years.

The District Court in an order passed in the said execution petition ordered their arrest and production before it on June 8, 2012. 

Immediately, the father-son duo filed a civil revision petition in the High Court Bench here in 2012 and obtained an order of stay of the impugned order thereby managing to keep the arrest order in abeyance until disposal of the civil revision petition.

 

Justice Duraiswamy before whom the revision came up, found the same to be devoid of merits and accordingly dismissed it by his judgment. 

Once the decision taken by a judicial authority under Section 8(1) of the Arbitration & Conciliation Act declining to refer the dispute to arbitration has become final, jurisdiction of the Chief Justice under Section 11(6) of the Act cannot be invoked

The Supreme Court of India has held¹ that either party to the proceedings cannot invoke the jurisdiction of the Chief Justice under Section 11(6) of the Arbitration and Conciliation Act, 1996 after the decision taken by a judicial authority under Section 8(1) of the Act declining to refer the dispute pending before it to arbitration and the said decision has become final.

The case involved a suit filed by a partnership firm, viz., M/s. Rana Sahebram Mannulal and three others before the Court of the Civil Judge Senior Division at Aurangabad, Maharashtra. The appellants before the Supreme Court were defendants 1 to 3 in the said suit. The dispute mainly pertained to the partnership business.

Upon entering appearance, the defendants/appellants had filed an application under Section 9A of the Code of Civil Procedure, 1908 to dismiss the suit for want of jurisdiction since the partnership deed contained a provision for arbitration and hence the disputes were liable to be resolved in terms of the Act. In other words, the application filed by defendants, in essence, was to be treated as an application under Section 8(1) of the Act. The same was opposed by the plaintiff. The trial court upheld the objection and held that it was within the jurisdiction of the court to try the dispute and, therefore, it was not required under law to refer the same to arbitration.

The suit proceeded. The parties have examined all their witnesses.

While so, the respondents herein approached the Chief Justice of the High Court of Judicature at Bombay by filing an application under Section 11(6) of the Act seeking appointment of an arbitrator as per the terms of the partnership deed. The appellants opposed the prayer.

The High Court, as per the impugned order, ignored the objection and held that Section 8(3) of the Act does not preclude appointment of arbitration during course of the litigation pursuant to an agreement

“4. Sub-section (3) of Section 8 of the Act does not preclude appointment of arbitration during course of litigation pursuant to agreement. Taking into account sub-section (3) of Section 8 and Section 11 of the Arbitration and Conciliation Act, 1996, it would be expedient that pursuant to clause 6 of the partnership deed, a proper person be appointed as arbitrator to entertain dispute between the parties,” so held the High Court.

The defendants in the suit, aggrieved by the order of the High Court carried the matter in appeal to the Supreme Court.

The Apex Court Court was thus essentially confronted with the issue as to whether either party to the proceedings can invoke the jurisdiction of the Chief Justice under Section 11(6) of the Act after the decision taken by a judicial authority under Section 8(1) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) declining to refer the dispute pending before it to arbitration and the said decision has become final. The scope of Section 8(3) of the Act was also an ancillary issue before the Court.

The Court held that the facts of the case would show that the application filed by the respondents before it under Section 11 of the Act was nothing but an abuse of process. “The partnership firm itself is the first plaintiff in the suit. The dispute between the parties is the subject of the suit. Precisely for that reason, the appellants sought the matter to be referred to the arbitrator. That was opposed by the respondents. When the suit is at the final stage, the respondents have sought appointment of an arbitrator under Section 11(6) of the Act. Having approached the civil court and having opposed the reference to arbitration under Section 8(1) of the Act and the decision of the court in that regard having become final, the respondents cannot invoke jurisdiction under Section 11(6) of the Act; it is hit by the principle of issue estoppel.”

The Court explained further: “Under Section 8(1) of the Act, either party is free to apply to the judicial authority within the prescribed time to refer the parties to arbitration, in case the matter pending before it is the subject matter of an arbitration agreement. Section 8(3) of the Act however makes it clear that notwithstanding the application under Section 8(1) of the Act and the issue pending before the judicial authority, arbitration may be commenced or continued and an arbitral award can also be made. In other words, despite the pendency of an application under Section 8(1) of the Act before the judicial authority, Section 8(3) of the Act permits the parties to commence and continue the arbitration and the arbitral tribunal is free to pass an award. That alone is what is contemplated under Section 8(3) of the Act.

Writing the judgment for the Bench, Justice Kurian Joseph opined that the principle of res judicata would also come into play once the decision of the Civil Court under Section 8(1) of the Act had become final. He said: “In the suit instituted by the firm and some of the respondents, the order passed by the civil court that it was well within its jurisdiction to try the suit, despite the objection regarding the existence of a clause for arbitration, has become final. Thereafter, Section 11(6) jurisdiction of the Chief Justice cannot be invoked by either party. The principle of res judicata will also be attracted in such a case.”

The Bench of Kurian Joseph and Anil.R. Dave, JJ. thus held : “once the judicial authority takes a decision not to refer the parties to arbitration, and the said decision having become final, thereafter Section 11(6) route before the Chief Justice is not available to either party.”

The Apex Court accordingly set aside the impugned order and allowed the appeal with costs of Rs.25,000/-.

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1. Anil @ v. Rajendra, Civil Appeal No. 11604 /2014 [Arising out of S.L.P. (Civil) No. 15314 of 2014, decided on 18.12.2014