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2013 Supreme(Mad) 3157

High Court of Judicature at Madras
V. RAMASUBRAMANIAN, J.
M/s. L&T Finance Ltd., represented by its Zonal Legal Manager, C. Balasubramanian Chennai
Versus
M/s. G.G. Granites, Prop: G. Gopalakrishnan, Madurai
Application Nos. 2686 to 2693, 2766, 2803, 2805, 2815, 2879, 2880, 2923 to 2926, 3001, 3012, 3044, 3052 to 3055, 3063 to 3074, 3100, 3114, 3115, 3117, 3118, 3120, 3244, 3245 to 3255, 3272, 3273, 3340, 3354 to 3357, 3399, 3447 to 3549, 3551 to 3553, 3566 to 3573, 3579, 3595 to 3598, 3600 , 3601, to 3609, 3689, 3690, 3749, to 3753, 3761, 3775 to 3777 to 3780, 3785, 3802, 3806 to 3818, 3851, 3852, 3892, 3904, 3906, 3907, 3908, 3909, 3910 & 3911 of 2013
Decided on : 06-09-2013

Advocates Appeared:
For the Applicant:T. Srinivasaraghavan, Advocate.
For the Respondent: --------------

Headnote:(a). Arbitration and Conciliation Act, 1996 - Section 9 - Civil Procedure Code, 1908 - Order 39 - Rule 7(1)(a & (b) - The Civil Court is vested with the power to appoint a Receiver for seizing suit property under Civil Procedure Code and under Section 9 of the Arbitration Act to appoint an Advocate Commissioner for seizure of hypothecated vehicles – the court has the jurisdiction to appoint the above mentioned under Section 9 of the Arbitration Act.

        (b). Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [SARFAESI Act] - Section 2(1)(n) – While affirming that hypothecation is not a creation of statute, meaning of hypothecation discussed as a charge without delivering the possession of the movable property and that the attached rights are governed as per the terms stated in the contract.

        (c). Arbitration and Conciliation Act, 1996 - Section 9 – Financial institutions challenged the power of appointing Advocate Commissioner despite a specific clause in the agreement between Financier and Borrower giving power to Financier to hypothecate vehicles in case of default of payment – it was stated that as per previous decisions the court is under obligation to honor the terms of agreement – it was stated that the very scheme of Arbitration Act is autonomy of the parties and held that the court had the power to appoint Advocate Commissioner as there exists a separate provision in the agreement.

Judgement Key Points

Based on the provided legal document, here are the key points regarding the appointment of an Advocate Commissioner and the powers of the Civil Court under Section 9 of the Arbitration and Conciliation Act, 1996:

  • Civil Court Jurisdiction: The Civil Court possesses the jurisdiction to appoint an Advocate Commissioner for the seizure of hypothecated vehicles under Section 9 of the Arbitration Act, a power that is analogous to the court's authority to appoint a Receiver for seizing suit property under the Civil Procedure Code (Order 39, Rule 7). (!)
  • Nature of Hypothecation: Hypothecation is not a statutory creation but is defined under Section 2(1)(n) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [SARFAESI Act] as a charge created without the delivery of possession of the movable property. (!)
  • Contractual Autonomy: The rights attached to a hypothecation are governed by the terms of the contract between the financier and the borrower. If the agreement includes a specific clause empowering the financier to take possession or appoint a Receiver in case of default, the court is obligated to honor these terms, and the court has the power to appoint an Advocate Commissioner to enforce such a separate provision. (!)
  • Statutory Basis for Powers: Section 9 of the Arbitration Act incorporates provisions similar to Order XXXIX, Rule 7 of the Code of Civil Procedure regarding the detention, preservation, or inspection of property, thereby enabling the court to authorize a person to enter land/buildings and seize property. (!) (!)
  • Procedural Guidelines: While financial institutions can seek ex parte orders to appoint an Advocate Commissioner for seizure if it appears just and convenient, the court must simultaneously issue notice to the respondent. The vehicle seized shall be held in custodia legis (in the custody of the court) on behalf of the applicant. (!) (!)
  • Necessity of Arbitration Initiation: Before closing an application for seizure, the court must ascertain whether the applicant has initiated arbitral proceedings; if not, the court may pass orders putting the applicant on terms as laid down in Sundaram Finance's case, as Section 9 relies on a close nexus with the initiation of arbitration. (!)
  • Precedent and Guidelines: The guidelines issued by the Division Bench in Cholamandalam DBS Finance Ltd vs. Sudheesh Kumar [2010 (1) LW 951] regarding the appointment of an Advocate Commissioner currently hold the field, affirming that such appointments are not mechanically done without considering disputed questions. (!) (!)
  • Discretionary Power: The power under Section 9 is discretionary and must be exercised sparingly, ensuring that effective steps are taken to commence arbitral proceedings, and cannot be used as a matter of course or as a drastic remedy without utmost circumspection. (!) (!) (!)
  • Restrictions on Force: While ownership may remain with the hirer until changed, this does not entitle them to take back possession by force based on the agreement; the court's intervention via an Advocate Commissioner is the proper legal route. (!)

Judgment :

1. The decision rendered by Vinod Kumar Sharma, J., in Hinduja Leyland Finance Limited vs. Jaffer Khan and Others {2013 (2) LW 401}, holding that the practice of Finance Companies/Banks seeking the appointment of an Advocate Commissioners to seize and take possession of the hypothecated vehicles and equipment, is not a remedy envisaged under Section 9 of the Arbitration and Conciliation Act, has given rise to an impression as though such a procedure is never to be read into Section 9 at all under any circumstances. Therefore, when similar applications came up before the other learned Judges of this Court, the decision in Hinduja Leyland Finance, was taken to be a boulder on the track. Hence, when a batch of applications came up, the learned counsel appearing for various Finance Companies requested me to steer clear of the doubts raised by or in Hinduja Leyland Finance.

2. Since I am not dealing with individual cases, but merely testing a pure and simple legal question on the scope of Section 9 of the Arbitration and Conciliation Act, 1996, I shall not go into the factual details. However, it is necessary to state that I am proceeding on the basis of certain presumptions, which if present in a given case alone, would attract the principles of law that I seek to decode here. The presumptions are (i) that there is a valid agreement between the financier and the borrower, under which the purchase of a vehicle or equipment by the borrower is financed by the financier; (ii) that under the agreement, the vehicle or equipment is hypothecated to the financier; (iii) that there was a default by the borrower in making payment of the instalments stipulated under the agreement. I propose to examine the issue on hand, only in respect of cases in which the factual matrix contains the above 3 fundamental elements. But a brief prelude in imminent.

PRELUDE

3. At the outset, it should be pointed out that the Arbitration and Conciliation Act, 1996 merely enables the parties to a contract to have their disputes adjudicated by a Forum other than the normal Civil Courts. But at the same time, the Act recognises the fact that without the normal Civil Courts lending a helping hand to such alternative Fora, the enforcement of decisions rendered by them would remain a distant dream. The provisions of Section 9 (interim measures), Section 27 (Court assistance in taking evidence) and Section 36 (enforcement of awards falling under Part-I), are all instances where the indispensability of Civil Courts is recognised in the Statute. In respect of protection and preservation of the subject matter of a dispute pending arbitration and in respect of enforcement of the awards, the Arbitration Act, makes the normal Civil Court, a coalition partner of the Arbitral Tribunal. While Section 36 of the Arbitration and Conciliation Act, 1996, incorporates into the Arbitration Act, the provisions of Sections 36 to 74 and the provisions of Order XXI of the Code of Civil Procedure, to the extent that they could be invoked, the provisions of Section 9 can be said to have inbuilt within it, the provisions of Section 94 as well as Orders XXXVIII, XXXIX and XL of the Code of Civil Procedure.

4. If we have a careful look at the language employed in Section 9, it is seen that Section 9(i) of the Arbitration Act, is similar to the provisions of Order XXXII though both are not exactly identical. While Order XXXII of the Code contains detailed procedure relating to the next friend of a minor plaintiff, the appointment of a guardian for a minor defendant, the retirement or removal of such next friend or guardian etc., section 9(i) of the Arbitration Act, broadly enables the Court to appoint a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings.

5. Similarly, Section 9(ii) of the Arbitration Act, lists out the various types of the interim measures that could be ordered by a Court. A comparison of Clauses (a), (b), (c), (d) and (e) of Sect

























































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