Sundaram Finance Ltd. v. Biju Scaria

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE K.HARILAL** **TUESDAY, THE 15TH DAY OF JULY 2014/24TH ASHADHA, 1936** **CRP.No. 145 of 2011** **------------------------** **AGAINST THE ORDER IN I.A.1069/2010 IN OS 127/2010 of MUNSIFF COURT,KATTAPPANA DATED 20-10-2010** **REVISION PETITIONER(S)/DEFENDANT :** **-----------------------------------** **M/s.SUNDARAM FINANCE LTD., 21, PATTULLOS ROAD, CHENNAI- 60002, REPRESENTED BY ITS BRANCH MANAGER N.H.GOPALAKRISHNAN, KATTAPPANA.** **BY ADV. SRI.VPK.PANICKER** **RESPONDENT(S)/PLAINTIFF :** **--------------------------** **BIJU SCARIA, S/O.SCARIA, KURAKUNNE (H), KATTAPPANA KARA, KATTAPPANA.P.O.** **THIS CIVIL REVISION PETITION HAVING BEEN FINALLY HEARD ON 15-07-2014, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **stu** **'CR'** ## **K.HARILAL, J.** = = = = = = = = = = = ## **C.R.P.No.145 of 2011** = = = = = = = = = = = = = = = Dated this the 15[th] day of July, 2014 **O R D E R** The petitioner herein is the defendant in O.S.No.127/2010 on the files of the Munsiff's Court, Kattappana, filed by the respondent herein and the respondent in I.A.No.1069/2010 filed therein. The above suit was filed by the respondent/plaintiff for a perpetual injunction restraining the petitioner/defendant from taking possession of the plaint schedule vehicle otherwise than by due process of law. The plaint schedule vehicle is a stage carriage bus bearing Reg. No.KL.6-E-203 owned by the plaintiff. It was purchased from the defendant at a price of ₹ 12 lakhs. The defendant is a private financing company engaged in lending loan under the hire purchase agreement. The plaintiff availed a loan from the defendant C.R.P.No.145 of 2011 2 for an amount of 11,50,000/- for the purchase of the said₹ vehicle and the loan amount was agreed to be repaid by 47 monthly instalments of 31,710/-. The plaintiff paid 16₹ instalments towards the loan and thereafter he could not remit the remaining instalments as specified in the agreement. On 18/06/2010, the defendant tried to take possession of the vehicle forcibly; but he could not succeed. At any rate, the vehicle will be taken away by force at any time. They have no right to do so. Hence, the respondent/plaintiff filed the above suit as prayed above. 2. The petitioner/defendant entered appearance and filed a written statement along with I.A.No.1069/2010 challenging the jurisdiction of the civil court, and seeking an order directing the plaintiff to invoke arbitration clause in the loan agreement between the plaintiff and the defendant. In the written statement, the defendant contended that, in view of the arbitration clause under Article 22 of the agreement, the civil court has no jurisdiction to entertain the civil suit pertaining to the dispute that falls under Sec 8 of C.R.P.No.145 of 2011 3 the Arbitration and Conciliation Act. Besides, according to the said loan agreement, the plaintiff is liable to pay monthly instalments on the due date mentioned in the second schedule of the loan agreement. In case of default, contrary to the said undertaking in the agreement, the defendant has the right to take possession of the vehicle, without notice to the plaintiff, ie., to enter upon the premises or garage where the vehicle is lying and if necessary, to break open any such place. In view of the specific clause empowering the defendant to recover possession of the vehicle, in case of default, no prohibitory injunction can be passed against the defendant and the suit itself could not have been entertained for the relief prayed for in the suit. 3. After considering the rival contentions, the court below dismissed the above I.A. on a finding that inclusion of the arbitration clause in the agreement does not cause ouster of the jurisdiction of the civil court and also the right of recovery of possession by force, after breaking open the premises granted to the petitioner is illegal and 4 C.R.P.No.145 of 2011 unenforceable under law. The legality and propriety of the above findings are under challenge in this revision petition. 4. The learned counsel for the petitioner advanced arguments challenging the findings, whereby the court below dismissed the I.A. The learned counsel contends that, in view of the specific arbitration clause included under Article 22 of the agreement between the parties, the civil court has no jurisdiction to entertain the suit itself. Similarly, no prohibitory injunction can be passed against the petitioner/defendant as the right of recovery of possession of the vehicle by force is expressly granted to the petitioner under Art.14(2) of the agreement. The finding of the lower court that the petitioner has no right, to recover possession of the vehicle and if necessary, to break open any such place is unsustainable under law. 5. In view of the above submissions at the Bar, the first question to be considered is, whether the civil court has jurisdiction to entertain a suit based on an agreement, wherein there is an arbitration clause, in case of dispute ? 5 C.R.P.No.145 of 2011 6. This Court in **The Rubber Board v. Rosin Constructions** (2014 (2) KLT 95) relying on the decisions of the Supreme Court in **Branch Manager, Magma Leasing and Finance Limited & Another v. Potluri Madhavilata** **& Another** (2009 (10) SCC 103) and **State of Andhra Pradesh v. Manjeti Laxmi Kantha Rao (dead) by L.R.S & Ors.** (AIR 2000 SC 2220), held as follows: “11. Here, I must remember that according to S.5, of the Arbitration and Conciliation Act, not withstanding anything contained in any law for the time being in force, in matters governed by Part I, no judicial authority shall intervene except where so provided in Part I. This Section does not absolutely bar the jurisdiction of the Civil Court; but makes the intervention wherever so provided in Part I only i.e., the scope of intervention seems to be minimised in the new Act. Here also no ouster or express exclusion of the jurisdiction of the civil court; but the scope of jurisdiction is made restricted. The legislature in its wisdom did not think it fit to make absolute exclusion of the jurisdiction of the Civil Court.” Coming to the instant case, the only relief sought for by the C.R.P.No.145 of 2011 6 plaintiff is a prohibitory injunction restraining the defendant from taking possession of the vehicle otherwise than by due process of law. In the above decision also, this Court held that the jurisdiction of the civil court provided under Sec. 9 of the Civil Procedure Code cannot be taken away by the agreement between the parties. Sec.9 of the Code of Civil Procedure is enforcing the fundamental principle of law laid down in the maxim, 'ubi jus ibi remedium'. A litigant, having a grievance of civil nature, has got a right to institute a civil suit in a competent civil court, unless the cognizance is either expressly or impliedly barred. It was also held that there is no absolute ouster of jurisdiction of the civil court under Sec. 8 of the Arbitration and Conciliation Act and the scope of intervention seems to be minimized in the new Arbitration and Conciliation Act,1996. 7. The next question to be considered is, whether a suit for prohibitory injunction restraining one of the parties to the agreement from committing, any unlawful activity forbidden and punishable under law or any act injurious to 7 C.R.P.No.145 of 2011 the subject matter of the agreement would come under Sec.9 of the Arbitration and Conciliation Act, 1996? According to Sec.9(ii)(a),(c) (d) and (e), a party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Sec.36, apply to a court, for an interim measure of protection in respect of (a) the preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement, (c) the detention, preservation or inspection of any property or thing which is the subject matter of the dispute in arbitration (d) interim injunction (e) such other interim measure of protection as may appear to the court to be just and convenient. In this analysis, it can be held that, a suit for injunction by one of the parties or parties to the agreement restraining the other party or parties to the agreement from committing any unlawful activity, which would militate against equity, fair play or natural justice, and be injurious to the preservation of the subject matter of arbitration, is well maintainable 8 C.R.P.No.145 of 2011 before the civil court under Sec.9 of the Arbitration and Conciliation Act, notwithstanding the arbitration clause. If that be so, as in the present case, a suit for injunction restraining the other party to the agreement from recovering possession of the vehicle by force, otherwise than due process of law would certainly fall under the jurisdiction and power of the civil court under Sec.9 of the Arbitration and Conciliation Act, 1996 and the suit is maintainable, notwithstanding the arbitration clause in the agreement. 8. The learned counsel for the petitioner drew my attention to clause 14(2) of the arbitration agreement entered into between the petitioner/lender and respondent/borrower and contended that as per the said clause, the respondent/borrower shall not prevent or obstruct the lender from taking the possession of the vehicle by force, without the consent of the borrower, after entering into the premises, where the vehicle is kept, and if necessary, the lender has the right to break open any such places. Therefore, prohibitory injunction cannot be passed C.R.P.No.145 of 2011 9 as prayed for in the suit. In short, according to the learned counsel, the scope of an interim injunction under Sec.9 of the Arbitration and Conciliation Act is also ousted by this clause. In view of the above argument, we may have a look at the relevant clause 14(2) of the agreement, which reads as follows: “14(2). The borrower shall not prevent or obstruct the lender from taking the possession of the asset. For this purpose, the lender's authorised representatives, servants, officers and agents will have unrestricted right of entry and shall be entitled to forthwith, or at any time without notice to the borrower, to enter upon the premises, or garage or godown where the vehicle(s) shall be lying or kept and to take possession or recover and receive the same and if necessary to break open any such, the lender will be well within its rights to use tow-van or any carrier to carry away the asset. The borrower shall be liable to pay any towing charges and other such expenses incurred by the lender for taking the possession of the asset and for its sale etc. if the lender takes possession of the hypothecated asset the lender shall not be responsible notwithstanding 10 C.R.P.No.145 of 2011 anything to the contrary containing in Sec.151 of the Indian Contract Act or any laws or deterioration of or damage to the hypothecated asset whether by theft, fire, rain, flood, earthquake, lightening, accident or any other cause whatsoever”. In view of the above clause, the next question that emerges for consideration is, does the above clause constitute a lawful agreement or valid contract enforceable under law. This question is to be determined in view of Sec.23 of the Indian Contract Act, which reads as follows: “23. What consideration and objects are lawful, and what not. - The consideration or object of an agreement is lawful, unless - it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every C.R.P.No.145 of 2011 11 agreement of which the object or consideration is unlawful is void”. 8. According to Sec.10 of the Indian Contract Act, the object of an agreement must be lawful to constitute a valid contract. As per Sec.23 of the Indian Contract Act, the object of an agreement is lawful unless it is forbidden by law. An agreement preventing the borrower, from obstructing the lender from trespassing into the property or premises of the borrower after breaking open his premises where the vehicle is kept and taking away the vehicle by force is an act constituting criminal trespass, forbidden and punishable under law. An offence or illegal activity cannot be done under an agreement, as it involves and implies injury to a person and property of another, the borrower and it is immoral and opposed to public policy. It restrains the legal proceedings available under law to the borrower and makes the clause void under Sec.28 and unenforceable under Secs. 10 and 23 of the Indian Contract Act. This analysis gets support from Sec.7 of the Specific Relief Act 12 C.R.P.No.145 of 2011 also. According to Sec.7 of the Specific Relief Act, a person entitled to the possession of the specific movable property may recover it in the manner provided by the Code of Civil Procedure, 1908. Even if, an illegal clause is incorporated in the agreement, contrary to the public policy or contrary to any provisions of law under any statute or contrary to constitutional provision, and as a result whereof valuable rights of the parties are taken away, such clause is invalid, unlawful and unenforceable in the eye of law and would be null and void. 9. Everybody is abide by the law and has to pursue due course of law for getting the reliefs. In my view, a possession which was given under an agreement between the parties cannot be allowed to be taken away by force, otherwise than in due course of law. The lender cannot be allowed to take law in his own hand and recover the vehicle forcibly from the possession of the borrower, after breaking open the premises or garage where the vehicle shall be lying or kept. A right to recover possession of the vehicle by 13 C.R.P.No.145 of 2011 force, otherwise than in due course of law is implied in the above clause in favour of the lender. In the above view, it can be held that the above clause is incorporated with an unlawful object and does not make a valid contract. It is illegal, invalid and unenforceable in view of Secs.10 and 23 of the Indian Contract Act. It follows that such invalid and unenforcible clause in the agreement does not prevent the court from passing an order of injunction restraining the defendant from committing any illegal activity, forbidden and punishable under law. But, I make it clear that the lender can recover possession of the vehicle, in due course of law. 10. The arbitrator also is empowered to issue such interim orders under Sec.17 of the Arbitration and Conciliation Act for the protection of the vehicle, unless otherwise agreed by the parties. In this context, it is apposite and profitable to take note of the observation in the decision reported in **T.M.L. Financial Services Ltd. v. Vinod Kumar** (2010 (1) KHC 115). In this decision, this C.R.P.No.145 of 2011 14 Court held that, even if, seizure of the vehicle in case of default is permitted, it can only be done lawfully. 11. In this analysis, I hold that, in a suit for injunction alleging and apprehending illegal recovery of possession of the vehicle by force, the lender cannot put forward the defence of arbitration clause, which prevents the borrower from seeking due course of law, before the civil court, to oust jurisdiction of the civil court. The suit for injunction with interim prayer for the prevention of an illegal activity, on apprehension, is an equitable remedy, available to the aggrieved party, falling under Sec.38 of the Specific Relief Act and Order 39 Rules 1 and 2 of the Code of Civil Procedure and the jurisdiction is vested with the civil court under Sec.9 of the CPC. Such suit for injunction is well maintainable under Sec.9 of the Arbitration and Conciliation Act, 1996 also. It cannot be taken away by mere inclusion of an arbitration clause, with unlawful agreement preventing the borrower from invoking the jurisdiction of the civil court and such an equitable remedy against illegal activity under C.R.P.No.145 of 2011 **==> picture [13 x 9] intentionally omitted <==** an unlawful and unenforceable agreement falls outside the scope of 'dispute' under Sec.8 of the Arbitration and Conciliation Act. In this analysis, I find that there is no illegality or impropriety in the impugned order under challenge. This revision petition is devoid of merits and dismissed accordingly. **K.HARILAL, JUDGE.** Stu //True copy// P.A to Judge