"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Monday, December 16, 2013

Dhandapani Finance Ltd. v. Laxmi Cranes and Trailers Pvt. Ltd.: Comment

Dhandapani Finance Ltd. v. Laxmi Cranes and Trailers Pvt. Ltd. 2013 (5) CTC 832 (Madras HC, August 2012) is a very interesting case.

Laxmi Cranes had obtained loan from a finance company (Dhandapani). The suit was filed by Laxmi seeking damages for non-release of the crane-related documents despite full payment of the loan taken by them. In the plaint, it was alleged that Dhandapani obtained signature on blank bond papers from the representative of Laxmi Cranes. Dhandapani filed an application under Section 8 to refer the matter to arbitration. Laxmi Cranes resisted the application on the ground that the relief sought for in the Plaint was permanent injunction restraining Dhandapani from interefereing with the business of Laxmi Cranes and such a relief was not arbitrable. Consequently, it was contended that the matter was not arbitrable in view of Sukanya Holdings v. Jayesh H. Panda and Arul Singh v. Sunil Kumar Singh 2008 (2) CTC 856.

The relevant portion of the arbitration clause provided: “22(a). All disputes, differences any/or claim arising out of this Agreement whether during its subsistence of thereafter shall be settled by arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996, or any statutory amendments thereof and shall be referred to the sole Arbitration of an Arbitrator nominated by the Managing Director of the Lender. The Award given by such an Arbitrator shall be final and binding on the borrower to this Agreement. It is a term of this Agreement that in the event of such an Arbitrator, to whom the matter has been originally referred dying or being unable to act for any reason, the Managing Director of the Lender, at the time of such death of the Arbitrator or of his inability to act as Arbitrator, shall appoint another person to act as Arbitrator. Such a person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor.” (emphasis supplied)

A Single Judge of the Madras High Court (Subbiah, J.) held the following:
a) Where the subject matter before the court involves arbitrable and non-arbitrable matters, the civil court can proceed with the suit and decide the entire subject matter.
b) In the present case, the relief sought for is permanent injunction restraining Dhandapani from interfering with its business, including injunction against sending of henchmen to seize the cranes, etc.
c) Further, the dispute pertains to release of a document for which the Defendant has already made payment and such a dispute would not come within the scope of the arbitration clause. Hence, the matter falls outside the scope of arbitration.

There are only two points worth noting here. First, just because the relief sought is permanent injunction, that alone does not make the dispute non-arbitrable. The right not to be disturbed by the finance company is not even a right in rem. Secondly, the arbitration clause as provided is sufficiently worded and courts these days do not dissect the arbitration clause to see if the dispute is covered within the purview of arbitration. The clause in the current context does not indicate any intent to exclude the above dispute from arbitration. Hence, it is doubtable if such a clause is arbitrable. It appears that the judge has perhaps recognized that in such loan transactions, the lender has a superior bargaining position, especially when the lender has the right to appoint the arbitrator. Nevertheless, the question is whether the judge should distort the law to suit the ends of his conception of justice.


Murali Krishna said...

True. Knowingly or unknowingly, sometimes such judgements are given contrary to the Statute and its scope and object. This trend is more in the case of A&C Act, 1996 since parties restrict jurisdiction of courts in disputes and their appointment of arbitrators.

Badrinath Srinivasan said...

Thanks Mr.Murali Krishna for the comments. Very true.