The judgment clarifies that an accidental inclusion of property in an attachment application needs comprehensive adjudication to determine the correct applicability of arbitration interim orders.

JUDGMENT

Anil K. Narendran, J.

This appeal, filed under Section 96 read with Order XLI Rule

1 of the Code of Civil Procedure, 1908 , is filed by the 1st respondent in I.A.No.4 of 2020 in I.A.No.6743 of 2019, in C.M.A(Arb).No.1159 of 2019, who is the applicant in C.M.A(Arb.)No.1159 of 2019 on the file of the Additional District Court-II, Ernakulam.

2. The appellant is a non-banking financial institution.

The 3rd respondent herein availed a loan for Rs.2 Crores from the appellant on 09.02.2017. In that loan transaction respondents 4 to 6 stood as guarantors. An agreement was executed on 09.02.2017 creating equitable mortgage of the immovable properties owned by the borrower and also the guarantors. When there was default in repayment of loan amount, the appellant invoked the arbitration clause in the aforesaid agreement and referred the dispute for arbitration before the sole Arbitrator. Along with the reference, the appellant filed an application under Section 17 of the Arbitration and Conciliation Act, 1996 , seeking attachment of the immovable properties of the borrower and the guarantors. The Arbitrator passed an interim order dated 06.05.2019, whereby the borrower and the guarantors were directed to show cause why security should not be furnished for a sum of Rs.2,80,93,537/- on or before 29.05.2019. In the meanwhile, the properties of respondents 2 and 4 therein, described in schedule Nos.1 to 4 annexed to the application for attachment were, conditionally attached for the said amount. 3. For enforcing the interim order passed by the Arbitrator, the appellant approached the District Court, Ernakulam by filing C.M.A(Arb.)No.1159 of 2019, invoking the provisions under (2) of the Act. The court below allowed that application and effected attachment. Subsequently, the respondents 1 and 2 herein filed claim petition under Order XXI Rule 58 read with Order XXXVIII Rules 8 and 9 of the Code in respect of a portion of the land covered by the attachment schedule item No.6, stating that they have purchased the same from the 4th respondent, before the order of attachment of the Arbitrator. Hence respondents 1 and 2 sought for an order for lifting the order of attachment over their property. Four others have filed similar claim petitions in respect of the property covered under attachment schedule item No.6.

4. The appellant opposed the aforesaid applications by filing objection, contending that the respondents have colluded each other and on getting the knowledge of the order passed by the Arbitrator, sale deed was executed in favour of respondents 1 and 2 and four others on the same day, by way of five sale deeds to defeat the interest of the appellant.

5. Before the court below respondents 1 and 2 and other four claim petitioners challenged the attachment over their properties on the ground that the attachment has been effected after the execution of the sale deeds. That was the only contention raised in their objection. However, at the time of final hearing, the court below found that the interim order passed by the Arbitrator was only to attach the first four items of properties scheduled therein and not the properties covered by the claim petition. According to the appellant it was only a mistake. The appellant pointed out before the court below that though the Arbitrator ordered attachment of only the first four items of properties, that order was accompanied by six schedules, including the property subsequently purchased by respondents 1 and 2 and four others. That interim order was silent about the exclusion of the properties scheduled as item Nos.5 and 6 in the application for attachment. Therefore, the appellant was under the impression that the Arbitrator has passed an interim order as prayed for and hence approached the court below to implement the order of attachment by showing six items of properties.

6. After considering the rival contentions the court below allowed I.A.No.4 of 2020 in I.A.No.6743 of 2019 in C.M.A(Arb.