Recently Hon’ble Delhi High Court in a three-judge-bench decision has overruled the division bench decision in Kohinoor Creations and Others Vs. Syndicate Bank 2005(2) Arb.LR 324 (Delhi). The Kohinoor judgement held that the debts due to Banks and Financial Institutions Act, 1993 (“RDB Act”) would prevail over the Arbitration and Conciliation Act, 1996.
The overruled judgement was inter alia based on provisions of section 34 of the RDB Act, which provided for the act to have an over-riding effect over any inconsistencies contained in any other law. In other words, if a claim is over Rs.10 Lakh then the jurisdiction of the civil court / arbitral tribunal was excluded qua banks and financial institutions (FIs) and was conferred exclusively on the Debt Recovery Appellate Tribunals.
The question to be decided by the larger bench was if the parties by mutual consent could agree to have disputes adjudicated by the arbitral tribunal even when special tribunals are constituted to decide on claims of banks and FIs in excess of Rs.10 Lakh.
The court held that when deciding on a section 8 application under the Arbitration and Conciliation Act, 1996, it is of paramount importance to note that the subject matter of the suit is capable of adjudication only by a public forum / special court / tribunal or if it was “arbitrable”.
It held that the three facets of “arbitrability” relating to the jurisdiction of the arbitral tribunal are:
In principle, all civil and commercial disputes, which are capable of adjudication by a civil court, can be adjudicated by an arbitral tribunal unless such adjudication is barred expressly or by necessary implication.
Criminal offences, matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody, guardianship matters, insolvency and winding up , testamentary matters (grant of probates , letter of administration and succession certificate, eviction or tenancy matters are not “arbitrable” and only special courts conferred with jurisdiction to decide the said issues ONLY can adjudicate.
Such cases relate to action in “rem”. A right in rem is a right exercisable against the world at large as compared to right to “personam” which is an interest protected solely against specific individuals.
It was observed that though not a rigid rule, generally and traditionally all disputes relating to rights in “personam” are considered to be amenable to arbitration, and all disputes relating to rights in “rem” are required to be adjudicated by courts and public tribunals and are unsuitable for private arbitration.
It was held that in line, a claim of money by the bank or FI against the borrower cannot be treated as a “right to rem”. Banks were not able to recover loans advanced by it on account of alarming increasing in Non Performing Assets, a statute that creates a special forum to expedite claims filed by such banks cannot be said to be deciding on any right to rem.
Discussing the Supreme Court judgement of Booz Allen and Hamilton Inc, the bench held that according to them, cases where a particular enactment creates special rights & obligations and gives special powers to the tribunals which are not with the civil courts, such disputes are not “arbitrable”.
For instance the Rent Control Act grants statutory protection to tenants. All contractual rights are overruled by the rights created under the Act. Such rights are not enforceable through the civil courts but only through the tribunals set-up under the said act.
The Industrial Disputes Act, 1947 creates special rights in favour of the workman and gives special powers to the industrial adjudicators / tribunals for the purpose and not to the civil court.
Such disputes cannot be decided by the arbitral tribunals, which are substitute of a civil court.
In contrast, there are no special powers given to the debt recovery tribunal, it is simply a replacement of the civil courts. There are also no rights created in favour of the banks and FIs. Since it is only a shift of forum from civil court to the tribunal for speedy recovery of dues owed and applying the principle contained in the Booz Allen and Hamilton judgement (Supreme Court), the bench held that all matters which come under the scope and jurisdiction of the debt recovery are indeed “arbitrable”.
Another significant fact which was highlighted by the bench was that the bank had entered into an agreement with the respondents on its own standard format, and had indeed decided the terms and conditions including the arbitration clause. It could not now be permitted to negate the said clause. It held that the court cannot allow a situation where the arbitration agreement is one sided to be invoked by the bank alone at its discretion without giving any rights to the respondent.
The judgement of the Delhi High Court is significant not only for banks/ FIs which can expect expeditious adjudication of claims before the arbitral tribunals (given the huge pendency and related delays before the various debt recovery tribunals), but also for company counsels, who are grappling protracted litigation before the various tribunals / forums incurring huge expenses.
A case in focus is of consumer forums. In the last 25 years, over 30 lakh cases have been filed by consumers. Lakhs of cases are pending on account of low disposal rate at many of the forums / commissions. Cases take years across the various levels of appeal costing money. The cost escalation is on account of delays, pendency, lack of infrastructure and lack of quorum at most times.
It is now time (in light of the judgement summarised) to fast track permitted cases pending adjudication before various tribunals / quasi judicial bodies on the arbitration mode, of course we will have to ensure that all our agreements have an arbitration clause.
www.grandmasters.in | 8 Years & Counting
www.rcls.in | 8 Years & Counting
www.itlegalsummit.com | 8 Years & Counting
www.bfls.in | 8 Years & Counting
www.maels.in | 8 Years & Counting
www.plcs.co.in | 8 Years & Counting
Copyright © 2020 Lex Witness - India's 1st Magazine on Legal & Corporate Affairs Rights of Admission Reserved
