Arbitration Appeal No.16 of 2008

4th July, 2008

Petitioner Counsel: Mr. BHANDARI,Mrs. PRANJAL BHANDARI
Respondent Counsel: Mr. RAMCHANDRA YADAV,Mr. R. S. GHADGE,Mr. A. S. DESAI

Cases Cited:
Percept D'Mark (India) Pvt. Ltd. Vs. Zaheer Khan, 2004(1) ALL MR 384=2004(2) BCR 47 [Para 8,10]
Global Aviation Services Pvt. Ltd. Vs. Malaysian Airline System Berhad, 2007(5) ALL MR 69=2007(5) BCR 121 [Para 8,10]
Mardia Chemicals Ltd. Vs. Union of India, 2004(5) ALL MR 484 (S.C.)=AIR 2004 SC 2371 [Para 9]

JUDGMENT

JUDGMENT :- Heard the learned Counsel for the appellants and the learned Counsel for the respondents.

2. The appellants are challenging the judgment and order passed by the District Judge, Kolhapur who, by his judgment and order dated 15/3/2008 was pleased to allow the application filed by the Kolhapur Janta Sahakari Bank Ltd. below Exhibit 78 for rejecting the application filed by the appellants below Exhibit 70 and dismiss the application filed by the appellants herein below Exhibit 70 for temporary injunction restraining the Bank from taking any steps in pursuance of its notice dated 18/03/2005.

3. Brief facts in a nutshell are as under:

4. The appellants and respondent Nos.1 to 3 were partners in the partnership firm in the name and style of M/s. Ayodhya Hotel. They were also carrying on business of giving on rent multi-purpose hall in the name of Akshata Mangal Karyalaya and a hotel in the name of Yatri Niwas by virtue of partnership deed dated 27/3/1989. There was a dispute between the partners over the management of the partnership firm. It is the case of the appellants that respondent No.1 obtained loan from Kolhapur Janta Sahakari Bank Ltd. on the basis of forged and fabricated documents. Accordingly, police complaints were also filed by the appellants herein against respondent No.1.

5. Kolhapur Janta Sahakari Bank Ltd., Kolhapur filed a dispute against M/s. Ayodhya Hotel & its partners for recovery of an amount of Rs.1,74,95,872/-. The appellants also filed a civil suit No.144 of 2004 before the Civil Judge, Senior Division, Kolhapur, seeking various reliefs. Since there was an arbitration clause in partnership deed dated 27/03/1989, a Petition was filed by the appellants under section 9 of the Arbitration & Conciliation Act, 1996. An Arbitration Petition under section 11 of the Arbitration & Conciliation Act, 1996 was also filed and the High Court appointed Mrs. Urmila Joshi as a sole proprietor. An order was passed on 20/12/2004 appointing appellant No.1 as a Receiver and a direction was given to him to take possession of the business from the Executive Magistrate, Karveer with further direction to pay Rs.1,50,000/- per month. In the meantime, the respondent-Bank issued notice under section 13 of the SARFAESI Act dated 18/03/2005. The appellant gave their reply to the said notice dated 11/06/2005. In the meantime, the Bank made an application, seeking delivery of possession of the suit property and deposits which were made in the Court in favour of the Bank. The appellants therefore filed an application for amendment of the Petition which was filed under section 9, vide Exhibit 70 on 18/07/2005. Another application for temporary injunction was also filed, seeking relief against the bank. The Bank also filed an application for rejection of the appellants' application for adding them as party-respondent. The Bank gave an undertaking that it would only take symbolic possession and, accordingly, symbolic possession was taken by the Bank on 20/07/2005. The appellants further filed an application at Exhibit 87 to quash the Bank's notice dated 20/07/2005 and further application at Exhibit 132 was filed for restraining the Bank from taking further steps and another application at Exhibit 187 was filed for a declaration that the notices issued by the Bank were illegal. In the meantime, the appellants also filed a suit against the Bank for injunction vide Regular Civil Suit No.165 of 2008.

6. By the impugned judgment and order, the District Court was pleased to reject the application filed by the appellants at Exhibit 70 and allow the application of the Bank at Exhibit 78. The applications filed by the appellants at Exhibits 71, 132, 187 and 224 were rejected. The other applications were also disposed of.

7. Mr. Bhandari, the learned Counsel appearing on behalf of the appellants submitted that District Court had erred in rejecting the application filed by the appellants. He submitted that the respondent had obtained loan from the Bank on the basis of forged and fabricated documents and if the Bank was permitted to proceed with the proceedings under the SARFAESI Act, the arbitration proceedings would be rendered infuctuous. He submitted that it was always open for any party to the arbitration proceedings to seek appropriate orders from the Court under section 9 of the said Act for the purpose of securing/preserving any property which was a subject matter of the dispute in arbitration. He submitted that since partnership assets were specifically the subject matter of the arbitration and if the Bank was not restrained from proceeding with the proceedings which were initiated by them under SARFAESI Act, the proceedings would become infrucutous.

8. The learned Counsel appearing on behalf of the appellants relied upon two judgments of this Court in the case of Percept D' Mark (India) Pvt. Limited Vs. Zaheer Khan reported in 2004(2) BCR 47 : [2004(1) ALL MR 384] and in the case of Global Aviation Services Pvt. Ltd. Vs. Malaysian Airline System Berhad reported in 2007(5) BCR 121 : [2007(5) ALL MR 69].

9. It is not possible to accept the submissions made by the learned Counsel appearing on behalf of the appellants. In the present case, the Bank has instituted proceedings under the SARFAESI Act. There is a specific provision in section 35 of the said Act which lays down that the provisions of the Act would have overriding effect over other laws. The validity of the said provision has been upheld by the Apex Court in Mardia Chemicals Ltd. Vs. Union of India reported in AIR 2004 S.C. 2371 : [2004(5) ALL MR 484 (S.C.)]. It is the case of the Bank that the partners of the firm had taken loan from the Bank and had committed default in repayment of the loan and, therefore, recovery proceedings were initiated under the SARFAESI Act. On the other hand, it is the case of the appellants that the respondent Nos.1 to 3 had obtained loan on forged or fabricated documents and, therefore, they are not liable to pay the said amount to the Bank and, secondly, the property of the partnership firm also could not be sold for the purpose of repayment of the said loan amount.

10. In my view, it is open for the appellants to oppose the application and proceedings which are initiated by the Bank under the SARFAESI Act and seek discharge of their personal liability as also the liability of the firm to repay the said bank loan. The subject matter of the arbitration proceedings, essentially, is the statement of accounts between the partners, whereas the subject matter of the proceedings which are initiated by the Bank are in respect of recovery of loan which was taken by the partnership firm from the Bank. These proceedings being distinct and separate, the subject matter of both these proceedings, therefore, is different and, therefore, the learned District Judge was justified in rejecting the application filed by the appellants for impleading the Bank as party in section 9 Petition and also other applications which were taken out by the appellants herein. The learned Counsel appearing on behalf of the appellants has relied upon two judgments of this court in the case of Percept D'Mark (India) Private Limited [2004(1) ALL MR 384] (supra) and in the case of Global Aviation Services Pvt. Ltd. [2007(5) ALL MR 69] (supra). Perusal of the facts in the said cases clearly discloses that the ratio of the said judgments will not apply to the facts of the present case.

11. Hence, there is no merit in the submissions made by the learned Counsel appearing on behalf of the appellants. Appeal is accordingly dismissed. Under the circumstances, there shall be no order as to costs.

Appeal dismissed.