M/S Reliance Capital Limited v. Dr. Sajesh Ashokan and N.N. Ashokan

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE C.T.RAVIKUMAR** ## **&** **THE HONOURABLE MR.JUSTICE N.NAGARESH** **THURSDAY, THE 23RD DAY OF MAY 2019 / 2ND JYAISHTA, 1941** **Arb.A.No. 49 of 2014** **AGAINST THE ORDER IN OP(ARB) 5/2012 of II ADDITIONAL DISTRICT COURT, ERNAKULAM DATED 24-03-2014** ## **APPELLANT/RESPONDENT/CLAIMANT:** **M/S.RELIANCE CAPITAL LIMITED REGISTERED OFFICE AT 1ST FLOOR, H BLK, DHIRUBHAI AMBANI KNOWLEDGE CITY, KOPARKHAIRANE, NAVI MUMBAI AND ITS CORPORATE AND HEAD CONSUMER FINANCE DIVISION OFFICE AND CORPORATE OFFICE AT 570, RECTIFIER HOUSE NAIGON X ROAD, WADALA, MUMBAI-400 031** **BY ADV. SRI.T.RAJESH** ## **RESPONDENTS:** |**1**|**DR.SAJESH ASHOKAN**| |---|---| ||**S/O.N.N.ASHOKAN, AGED 38 YEARS,**| ||**NO.181, NEDUNGAYIL HOUSE,**| ||**KAVUMPADY ROAD, ERNAKULAM,**| ||**MUVATTUPUZHA, COCHIN.**| |**2**|**N.N. ASHOKAN**| ||**AGED 60 YEARS,**| ||**NO.181, NEDUNGAYIL HOUSE,**| ||**KAVUMPADY ROAD, ERNAKULAM,**| ||**MUVATTUPUZHA, COCHIN. (*DELETED )**| **THE NAME OF THE 2ND RESPONDENT IS DELETED FROM THE PARTY ARRAY OF THIS APPEAL AT THE RISK OF THE PETITIONER AS PER ORDER DATED 2.7.2015 IN IA 2133/2015 IN ARB.A 49/2014** **Arb.A.No. 49 of 2014** 2 **3** **MUVATTUPUZHA MEDICAL CENTRE NO.181, NEDUNGAYIL HOUSE, KAVUMPADY ROAD, ERNAKULAM, MUVATTUPUZHA, COCHIN, REPRESENTED BY ITS PARTNER DR.SAJESH ASHOKAN, S/O.N.N.ASHOKAN, AGED 38 YEARS.** **BY ADVS. SMT.ACHU SUBHA ABRAHAM SMT.K.R.MONISHA SRI.ANOOP BHASKAR SRI.PHILIP T.VARGHESE SRI.THOMAS T.VARGHESE** **THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 23.05.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **Arb.A.No. 49 of 2014** 3 ## **JUDGMENT** This appeal is directed against the order in OP(Arb)No.5/2012 dated 24.03.2014 passed by the District Court, Ernakulam. The respondent therein is the appellant and the petitioners therein are the respondents, in this appeal. The respondents herein filed the said Original Petition under Section 34(2) of the Arbitration and Conciliation Act, 1996 (for brevity ' the Act') for seeking to set aside the arbitral Award dated 26.08.2011 passed by the sole Arbitrator. 2. The conspectus facts is as follows:- The respondents herein availed a loan of Rs.1,39,00,000/- from the appellant. The said amount was to be repaid in 120 monthly instalments commencing from 15.04.2008 and ending on 15.05.2019. Going by the agreement the monthly instalment was Rs.2,05,498/-. The appellant alleged that, the respondents had committed chronic default in effecting monthly instalments and despite the demand for repayment of the aggregate due amount they failed to do so and consequently initiated arbitral proceedings. The appellant claimed an amount of Rs.1,35,83,952.53/- as the **Arb.A.No. 49 of 2014** 4 total amount outstanding required for closing the loan transaction. The claim petition was filed raising such claims before the arbitrator. They also claimed that immovable property in question was mortgaged by depositing the title deed of the same and claimed realisation of the aforesaid amount along with interest at the rate of 14.5% per annum, besides interest at the rate of 2% per month on the unpaid amount, _pendente lite_ by sale of mortgaged property and also sought for injunction restraining the respondents from alienating the mortgaged property. ## 3. Obviously, the arbitrator passed an Award on the following lines:- (a) The Respondents do jointly and /or severally pay to the claimant a sum of Rs.1,35,83,952.53/- (Rupees One Crore Thirty Five Lakhs Eighty Three Thousand Nine Hundred Fifty Two And Paise Fifty Three Only), together with the interest thereon @14.50% p.a. from 19[th] January 2011 as per the foreclosure statement, till payment or realization thereof. (b) It is hereby declared that the property to viz., 181, Nedungayil House, Kavimbady Road, Muvattupuzha, Cochin, Ernakulam: 686 661, is validly and equitably mortgaged by the Respondents with claimant towards repayment of aforesaid loan; (c) In the Event of default or failure of the Respondents to pay the aforesaid claim amount within a period of 3 months from the date of Award, the claimant is allowed to attach and same the said **Arb.A.No. 49 of 2014** 5 mortgaged property to viz; 181, Nedungayil House, Kavimbady Road, Muvattupuzha, Cochin, Ernakulam: 686 661. (d) The Respondents are hereby restrained by permanent injunction from selling and/ or creating third party interest in respect of said mortgaged property to viz; 181, Nedungayil House, Kavimbady Road, Muvattupuzha, Cochin, Ernakulam: 686 661, - (e) The Arbitration cost and the fees fixed at Rs.5,000/-, shall be equally paid by the claimant and the Respondents. (f) Initially the Arbitration cost and the fees shall be paid by the claimant and the claimant may recover the same from the Respondents. - (g) The parties shall bear their own cost incidental to the present Arbitration proceedings." 4. It is seeking setting aside of the arbitral award dated 26.08.2011 that the above mentioned Original Petition was filed under Section 34(2) of the Act, by the respondents herein. Upon hearing the parties and perusing the arbitral records the District Court formulated the following points for consideration: - (1) Is the award contain decisions on matters beyond the scope of the submission to arbitration? - (2) Is the award in conflict with the public policy of India? - (3) Is the award liable to be set aside for any of the said reasons? 5. Obviously, the District Court considered the contention of the respondents herein/the petitioners therein that the claims set **Arb.A.No. 49 of 2014** 6 forth by the appellant /claimant before the arbitrator was relating to a mortgage and therefore it was not available for arbitration. In short, according to them, the award relates to matters beyond scope of arbitration. To buttress their contention they relied on a decision of the Hon'ble Apex Court in **BOOZ ALLEN AND HAMILTON INC v. SBI HOME FINANCE LIMITED AND OTHERS** reported in 2011(5)SCC 532. Upon hearing the rival contentions and perusing the arbitral records the District Court found that the dispute regarding the mortgage was involved in the matter and as such the claim was virtually for realisation of money by sale of mortgaged property. In the light of the ratio of the decision in **BOOZ ALLEN** case (supra) it was found that, the arbitrator was not having the jurisdiction to decide such a dispute. Consequently, it was found that the award falls within the mischief of Section 34(2)(a)(iv) of the Act, inasmuch as it contains decision on matters beyond the scope of the submission of the arbitration. In short, the point was answered in favour of the respondents herein. 6. Though a bare perusal of the impugned order would suggest that the point No.2 was answered, on some grounds **Arb.A.No. 49 of 2014** 7 against the respondents herein, a careful scanning of the same would reveal that the same was also not actually held against the respondents herein based on the lack of jurisdiction to decide the dispute. True that, two contentions raised by the respondents herein were found against them. They contended before the District Court that the arbitrator was appointed by the Advocate of the respondents against law. The other contention was that legible copy of the statement of accounts was not furnished to them. At the same time, it is pertinent to note that they also contended that the statement of accounts was totally incorrect. The District Court found that those objections were pointedly considered by the arbitrator and the arbitrator held that his appointment was as authorised by the respondents and consequently, he overruled the preliminary objection raised by the respondents herein. Needless to say that, after repelling the said contention the arbitrator proceeded further and without any demur and even without challenging the competency of the arbitrator the respondents herein had participated in the arbitral proceedings. Taking into account such circumstances and more particularly the fact that the **Arb.A.No. 49 of 2014** 8 District Court also repelled the said contention with respect to the appointment of the arbitrator we do not find any reason to hold interfere with the findings on that issue. 7. On the grievance with respect to the non-supply of legible copy of statement of accounts, the arbitrator held that the petitioner had no complaint at the initial stage. The arbitrator observed that the letters and figures in the statement of accounts were too small. A perusal of paragraph 13 of the order would reveal that after filing a statement of objection the respondents did not appear in the proceedings. The arbitrator held that if they had actually participated in the arbitral proceedings after filing such a statement they could have obtained legible copy of statement of account. Consequently, taking note of the aforesaid aspect the District Court found that the arbitral award is not liable to be set aside on that ground. Thus it is obvious that though the District Court held that the arbitral award is not liable to be set aside on the ground that an arbitrator was appointed by the Advocate and not by the respondents herein as also on the ground that legible copy of the statement of accounts was not furnished to them, the **Arb.A.No. 49 of 2014** 9 respondents herein who were the petitioners before the District Court have neither chosen to file an independent appeal against the award in OP(Arb)No.5/2012, nor to file a cross objection. With respect to the aforesaid aspects no argument was also made on behalf of the respondents before us. In such circumstances, there is absolutely no reason to consider such aspects in this appeal. 8. A perusal of the impugned order would reveal that the District court arrived at the conclusion that the award is said to be in conflict with the public policy of India only for the reason stated specifically while answering point No.1. Under that point the District court arrived at the finding that the arbitrator was not having jurisdiction to decide the dispute since the issue really involved was a claim for realisation of money by sale of mortgaged property. On the aforesaid ground it was held that, the award is against law and it is in conflict with the public policy of India. Based on the findings under point Nos. 1 and 2 the award was held liable to be set aside and consequently, set aside. After setting it aside it was observed that the parties would be free to have the dispute settled before the appropriate forum. It is this order that is under challenge **Arb.A.No. 49 of 2014** 10 ## in this appeal. 9. Heard. 10. In the light of the discussion as above and upon perusing the impugned order it is evident that, the sole question to be considered is with respect to the arbitrability of the dispute. In otherwords, the question was whether the dispute involved is capable of adjudication and settlement by arbitration. While answering the said question it is only apposite to refer to the claim of the appellant. The claim of the appellant before the arbitrator was taken note of by the District Court in paragraph 2 of the order and the relevant portion of the order touching the claim, the correctness of which is not disputed, reads thus:- _"2. The petitioners availed a loan of Rs.1,39,00,000/- from the respondent. The amount was agreed to be repaid in 120 monthly instalments commencing from 15.04.2008 and ending on 15.05.2019. Rs.2,05,498/- was the monthly installemnt. The respondent, alleging that the petitioners defaulted repayment of monthly installments and that in spite of demand for repayment of the aggregate due amount, they failed, initiated arbitral proceedings. The respondent claimed that an amount of Rs.1,35,83,952.53 was the total amount outstanding and foreclosing the loan transaction, the claim petition was preferred before the learned arbitrator. The respondent contended that the petitioners mortgaged the immovable property by deposit of title deed. The respondent accordingly, claimed relief for realization of the above said amount along with interest_ **Arb.A.No. 49 of 2014** 11 _at the rate of 14.5% per annum, besides interest at the rate of 2% per month on the unpaid amount, pendente lite, by sale of the mortgaged property and also sought an injunction restraining the petitioners from alienating the mortgaged property."_ (underline supplied) 11. The appellant actually claimed the relief of realisation of the above said amount along with interest at the rate of 14.5%, besides interest at the rate of 2% per month on the unpaid amount, _pendente lite_ , by sale of the mortgaged property and also sought an injunction restraining petitioners from alienating the mortgaged property. In the appeal, no contention was raised by the appellant to the effect that this claim was incorrectly incorporated in the impugned award. In short, the fact is that the claim realisation of an amount of Rs.1,35,83,952.53/- with interest at the rate of 14.5% per annum, besides interest at the rate of 2% per month on the unpaid amount was by sale of mortgaged property. Besides the same the appellant also sought for injunction restraining the respondents herein from alienating the mortgaged property. 12. We are at a loss to understand as to how appellants could have sought for an injunction restraining the respondents from alienating the mortgaged property before the arbitrator. It is **Arb.A.No. 49 of 2014** 12 also ununderstandable as to how the appellants maintained the prayer for sale of mortgaged property before the arbitrator. From the claim of the appellant it was thus clear that the appellant did not have dispute regarding the existence of mortgage of the immovable property by deposit of title deed. The further indisputable fact is that before the arbitrator it also sought for sale of mortgage property and an injunction restraining the respondents herein/the petitioners therein, from alienating the mortgaged property. It is also an indisputable fact that an arbitral clause contained in the agreement dated 28.01.2008 under Clause 17. In the light of the said indisputable and undisputed facts the question is with respect to the applicability of the decision of the the Apex Court in **BOOZ ALLEN** case (supra). 13. In that context of the applicability of the decision in **BOOZ ALLEN** case (supra) to the facts of the case on hand it is only worthy to refer to paragraphs 22 and 28 of the said decision and they read thus:- _"22. The suit has been filed by SBI to enforce the mortgage to recover the amounts due to it. In that context, SBI has also sought delivery of vacant possession. The enforcement of the charge/mortgage over the_ **Arb.A.No. 49 of 2014** 13 _flat, realisation of sale proceeds thereform and the right of the appellant to stay in possession till the entire deposit is repaid, are all matters which are specifically mentioned in Clause (16) as matters to be settled by arbitration. Therefore, the subject-matter of the suit falls within the scope of the arbitration agreement._ ## _xxxxxx_ _28. In this case, the counter-affidavit dated 15.12.1999, filed by the appellant in reply to the notice of motion (seeking appointment of a Receiver and grant of a temporary injunction) clearly stated that the reply-affidavit was being filed for the limited purpose of opposing the interim relief. Even in the absence of such a disclaimer, filing a detailed objection to an application for interim relief cannot be considered to be submission of a statement on the substance of the dispute resulting in submitting oneself to the jurisdiction of the court."_ 14. The specific ground raised by the appellant in this appeal is that the impugned order was passed by the District Court based on the assumption that the appellant had sought for enforcement of the mortgage and as per the arbitral award the appellant was allowed foreclosure of mortgage. In ground 'c' it is also stated that the District Court had failed to consider the fact that arbitration was moved seeking an award allowing recovery of money and not with a prayer for foreclosure of mortgage. The tenability of the said contentions raised to mount challenge against the order in the said Original Petition has to be looked into in the **Arb.A.No. 49 of 2014** 14 light of the claim made by the appellant before the arbitrator. As noticed hereinbefore, the appellant herein claimed for sale of mortgaged property contending that, the respondents herein had mortgaged the immovable property by depositing the title deed. Evidently, it had also sought for an injunction restraining the petitioners from alienating the mortgaged property. It is in this context that the above-extracted recitals from **BOOZ ALLEN** case (supra) assume relevance. Evidently, it is not the case of the parties that the agreement in question was an agreement to sell or that it was an agreement to mortgage. At the same time it is evident that, the precise case of the appellant is that the respondents herein had mortgaged the immovable property by depositing title deed. It is based on the said contention that it made the prayer for sale of mortgaged property and an injunction restraining the respondents herein from alienating the mortgaged property. In **BOOZ ALLEN** case (supra) the Apex Court held that the 'An agreement to sell or an agreement to mortgage does not involve any transfer of right in rem but creates only a personal obligation. Further it was held therein that as a suit for enforcement **Arb.A.No. 49 of 2014** 15 of mortgage being enforcement of a right in rem, it will have to be decided by courts of law and not by Arbitral Tribunals. Sub paras (II)(III)(IV) and (V) therein would reveal as to why in circumstances where a prayer for sale of mortgaged property is raised, the Arbitral Tribunal should not arbitrate. In clear terms the Apex Court held as to why such matters should be decided only by courts of law not in arbitral proceedings. For effective sale of mortgaged property certain mandatory procedures have to be followed, which were specifically taken note of and dealt with by the Apex Court in the said decision. Such procedures cannot be adopted by an arbitrator and only courts of law are empowered to follow such procedures. In the light of the ratio of the decision in **BOOZ ALLEN** case (supra) revealed from the above-extracted paragraphs and in view of the admitted position in this case, rather, the admitted case of appellant herein that the respondents herein had mortgaged the immovable property by depositing the title deed and further taking note of the fact that the relief claimed in the claim petition before the arbitrator contained prayers for sale of mortgaged property and an injunction restraining the respondents herein from alienating the **Arb.A.No. 49 of 2014** 16 mortgaged property, we do not find any reason to interfere with the conclusion and finding of the District Court that the dispute involved was not capable of adjudication and settlement by arbitration. 15. Despite the fact that the parties have agreed upon arbitration as the form of settlement, taking into account the fact that the dispute involved does not relate to right in personam, whereas it relates to right in rem required to be adjudicated by courts, we are of the considered view that the finding of the District Court that the subject matter of dispute was not capable of settlement by arbitration under the law for the time being in force, cannot be said to be a finding contrary to law. In such circumstances, the reason assigned for interference with the award that it is in conflict with the public policy of India also does not call for interference. In the light of the decision of the Apex Court in _**Associate Builders v. DDA** [(2015) 3 SCC 49],_ more particularly paragraphs 18 and 27 therein, and the reaffirmation of the said decision with respect to the expression 'public policy of India' made in a later decision by the Apex Court in _**Ssangyong Engineering**_ **Arb.A.No. 49 of 2014** 17 ## _**Construction Co. Ltd. v. National Highways Authority of India**_ _**(NHAI)**_ reported in _2019 (2) KLT 679 (SC),_ it can only be held that the said expression would mean fundamental policy of Indian law. When the fundamental policy of law in respect of the subject is discernible from those cases, the finding of the District Court that the award is in conflict with law invites no interference. The upshot of the discussion is that this appeal lacks merits and consequently, it is dismissed. Sd/- **C.T.RAVIKUMAR, JUDGE** Sd/- **N.NAGARESH, JUDGE** dlk/aks/27.05.2019