IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION NOTICE OF MOTION NO.2618 OF 2008 IN ARBITRATION PETITION NO.333 OF 2008 WITH CHAMBER SUMMONS NO.1653 OF 2008 IN ARBITRATION PETITION NO.333 OF 2008 Citicorp Finance (India) Ltd. .. Petitioner Versus M/s.Sanjay Arts & Ors. .. Respondents And Noorjahan Salim Basha .. Intervenor Ms.Shakuntala Joshi i/by S.I.Joshi & Co for the petitioner. Mr.S.C.Naidu i/by C.R.Naidu & Co for the intervenor. CORAM CORAM CORAM : A.S.OKA, J. : A.S.OKA, J. : A.S.OKA, J. DATE DATE DATE : 19th December 2008. : 19th December 2008. : 19th December 2008. P.C.: . I have heard the submissions of the learned counsel appearing for the intervenor in support of the Notice of Motion No.2618 of 2008. I have also heard the submissions of the learned counsel appearing for the petitioner who has opposed the Notice of Motion. I have 2 also heard the learned counsel appearing for the petitioner in support of the Chamber Summons. The respondents in the Arbitration Petition have not appeared notwithstanding the service of notice. 2. According to the case of the petitioner, the 2nd respondent is the sole proprietor of the 1st respondent. The 2nd respondent approached the petitioner on or about October 2007 for grant of finance for purchase of the printing machinery more particularly described in paragraph no.3 of the petition. The petitioner granted loan of Rs.61 lakhs to the 1st respondent. On 13th October 2007 an Agreement of Hypothecation was executed by the 2nd respondent on behalf of the 1st respondent in favour of the petitioner. The machinery was hypothecated in favour of the petitioner. The 1st and 2nd respondent agreed to repay the loan amount in equated 48 monthly instalments. The 3rd respondent guaranteed performance of the terms and conditions of the agreement by the 1st respondent. According to the case of the petitioner the 1st to 3rd respondent committed defaults and therefore by letter dated 20th June 2008, the petitioner invoked arbitration clause and also called upon the 1st to 3rd respondents to pay outstanding amount of Rs.63,40,478.87/-. According to 3 the case of the petitioner, the hypothecated machinery is lying with the 4th respondent. According to the petitioner, inspection of the machinery could not be taken as the respondents declined to give inspection of the machinery to the petitioner. It is stated that the premises in which machinery is kept are locked and are guarded by eight to nine persons employed by the 4th respondent. On 10th July 2008, this Court passed an ad-interim order by which the Court Receiver, High Court, Bombay was appointed as the Receiver of the machinery. He was directed to take symbolic possession of the machinery. By order dated 16th July 2008, this Court directed the Court Receiver to take symbolic possession with the help of the police as a report was submitted that about eight to ten persons came to the site and obstructed the Court Receiver. A further order was passed by this Court on 17th July 2008 after hearing the counsel for the petitioner, the counsel for the 4th respondent and the counsel for the landlord of the premises in which machinery was kept. By the said further order, the Court Receiver was directed to take physical possession of the machinery and to keep the same in the godown of the petitioner. It appears that on 22nd July 2008, the said order was executed by the Court Receiver and the possession of the machinery was 4 handed over to the petitioner. 3. The Notice of Motion has been taken out by the intervenor praying for injunction restraining the petitioner from disposing of and from creating any third party rights in respect of machine more particularly described in prayer clause (a). Further prayer in the Notice of Motion is that this Court should give custody of the machine to the intervenor. In the alternative a prayer is made for directing the petitioner to deposit a sum of Rs.75 lakhs in this Court. On 07th August 2008 an order was passed permitting the intervenor to intervene in the Arbitration Petition and the petitioner was directed to keep the machinery in proper condition. An undertaking given to that effect by the petitioner was accepted by this Court. It must be stated here that the aforesaid order permitting intervention was challenged by the petitioner by preferring an appeal. The said appeal has been disposed of by keeping the contentions of the parties open. 4. The learned counsel appearing for the intervenor pointed out that the 2nd respondent approached the intervenor by representing that the 2nd respondent was desirous of purchasing a Vinyl printing machine being a 5 HP Scitex XL 1500 (4 colour) inkjet printing machine costing about Rs.76,60,883/-. The 2nd respondent requested the husband of the intervenor to provide the finance of Rs.75 lakhs for the purpose of acquiring the said machine. Accordingly, the intervenor paid a sum of Rs.50 lakhs by cheque dated 31st October 2007 and a sum of Rs.25 lakhs by a cheque of the same date drawn in favour of the 2nd respondent. Out of the said amount received from the intervenor, two pay orders were obtained by the 2nd respondent in the sum of Rs.15,00,000/- and Rs.46,00,000/- respectively in favour of M/s.Insight Communication Pvt Ltd as the said machinery was being purchased from M/s.Insight Communication Pvt Ltd. The 2nd respondent executed the hypothecation agreement/memorandum of understanding in favour of the intervenor recording receipt of a sum of Rs.75 lakhs. Under the said agreement, the machinery was hypothecated by the 2nd respondent in favour of the intervenor. The description of the machinery incorporated in the agreement is HP Scitex XL 1500 (4 colour) inkjet printing machine bearing serial No.3C5741Y155. The learned counsel for the intervenor pointed out that the 2nd respondent was to pay a sum of Rs.5,50,000/- to the intervenor per month and post dated cheques were accordingly issued by the 2nd respondent. 6 On execution of the aforesaid agreement, the 2nd respondent deposited with the intervenor, the proforma invoice dated 31st July 2007 issued by M/s.Insight Communications in favour of the 1st respondent. According to the case of the intervenor even the original contract between the 2nd respondent and M/s.Insight Communications was deposited with her. 5. He pointed out that the 2nd respondent has absconded from Bombay. He also pointed out that the description of the machinery in the Arbitration Petition filed by the petitioner is completely different and under the orders of this Court, the Court Receiver has erroneously taken possession of the machinery bearing serial No.3C5741Y155 which is hypothecated in favour of the intervenor. He pointed out that the machinery in respect of which a claim has been made by the petitioner in the Arbitration Petition has been clearly described not only in the Arbitration Petition but in the Hypothecation Agreement at Exhibit A to the petition. He pointed out that from the description of the machinery given in the petition it is apparent that the Court Receiver has not taken the possession of the said machinery but has taken possession of the machinery hypothecated in favour of the intervenor. He invited my 7 attention to the various documents annexed to the affidavit in support. He invited my attention to xerox copies of the pay orders in the sum of Rs.15 lakhs and Rs.46 lakhs respectively taken by the 2nd respondent. He invited my attention to Exhibit A1 to the rejoinder filed by the petitioner which is a letter dated 02nd August 2008 addressed by M/s.Insight Print Communications Pvt. Ltd to the petitioner which refers to pay order No.004033 dated 02nd November 2007 in the sum of Rs.15 lakhs, a copy of which has been annexed as Exhibit 2 to the affidavit in support of the Notice of Motion. He pointed out that the Receiver could not have taken possession of the machinery hypothecated with the intervenor. Without prejudice to the aforesaid contentions he submitted that the intervenor has no objection if the Court Receiver auctions the machinery and deposits the sale proceeds with this Court. He submitted that in such event, liberty may be granted to the intervenor to obtain appropriate orders by filing appropriate proceedings for establishing her right in respect of machinery and for a period of eight weeks, the petitioner should not be allowed to withdraw the sale proceeds. 6. The learned counsel appearing for the petitioner 8 in the Arbitration Petition submitted that there was sufficient description in the Arbitration Petition to identify the machinery. She pointed out from the Receiver’s report that even the service engineer of M/s.Insight Communications Pvt Ltd was present who identified the machinery. She pointed out that the Agreement of Hypothecation has been executed by the 2nd respondent in favour of the petitioner on 30th October 2007 and the intervenor is relying upon an agreement of November 2007. She invited my attention to the documents annexed to the affidavit in reply and in particular the documents at Exhibits C and E which show that even the manufacturer/seller of the machinery M/s.Insight Print Communications Pvt Ltd admitted that the machinery hypothecated with the petitioner is the same machinery over which a claim is sought to be made by the intervenor on the basis of the agreement which is subsequent to the agreement executed by the 2nd respondent in favour of the petitioner. 7. The learned counsel appearing for the petitioner in support of the Chamber Summons pointed out that the amendment proposed by the Chamber Summons is only for the purpose of correcting the description of the machinery on the basis of the letters issued by the 9 M/s.Insight Print Communications Pvt Ltd. The learned counsel appearing for the intervenor opposed the Chamber Summons by pointing out that in the original petition relief is claimed in respect of an altogether different machinery and therefore now the nature of the petition cannot be allowed to be changed by allowing the amendment. 8. I have carefully considered the submissions. It must be noted here that a submission was made by the learned counsel appearing for the petitioner that the intervenor third party cannot be allowed to intervene in this petition under section 9 of the Arbitration and Conciliation Act, 1996. She submitted that the scope of the such petition is very limited. However, this issue is not open as by the order dated 07th August 2008 passed by this Court (Coram: V.M.Kanade, J), the intervenor has been permitted to intervene in the Arbitration Petition and the said order has not been disturbed in Appeal. 9. The intervenor is claiming that a machinery more particularly described in prayer clause (a) of the Notice of Motion has been hypothecated in her favour by the 2nd respondent. Considering the limited scope of 10 petition under section 9 of the said Act of 1996 an adjudication cannot be made as regards the rights of the intervenor on the basis of the alleged Hypothecation Agreement. I am considering a very limited controversy as regards the description and identity of the machinery and the alleged illegality committed by the Court Receiver while taking possession of the machinery. 10. The petitioner in the Arbitration Petition claims on the basis of the Hypothecation Agreement in respect of the machinery which is more particularly described in Exhibit H. The description of the machinery in Exhibit H reads thus: PARTICULARS OF MACHINERY MODEL : HPSCITEXXL 1500 CHASSIS NO. : SE80071201 ENGINE NO. : SE80071201 The same description of the machinery is found in paragraph 3 of the petition, in prayer (b) of the 11 petition as well as in the Hypothecation Agreement annexed as Exhibit A to the Arbitration Petition. The intervenor is relying upon the Hypothecation Agreement executed in her favour by the 2nd respondent in which the machinery subject matter of hypothecation has been described as HP Sictex XL 1500 (4 colour) inkjet printing machine bearing serial No.3C5741Y155. Perusal of the reports of the Court Receiver and in particular report dated 23rd July 2008 shows that the description of machinery is in accordance with the description incorporated in the Agreement relied upon by the intervenor. The possession receipt of the machinery signed by the officer of the petitioner has been annexed to the Receiver’s report. The description of the machinery in the said receipt reads thus: ".... Model No.HPSCITEX XL 1500, CAT No.50151 S 00143 and Serial No.3C741Y155 as is where is basis in pursuance of Court’s Order dated 17th July 2008...." The same is the description mentioned in the handwritten report dated 22nd July 2008 of the representative of the Court Receiver. The description does not refer to chassis number and engine number referred to in the 12 description given in Arbitration Petition. Thus, the description of the machinery described in the petition as well as in the annexures to the petition is totally different from the description of the machinery taken over by the Court Receiver. The Court Receiver was aware about the description of the machinery given in the petition as the said description has been reproduced in the report of the representative of the Court Receiver on the basis of visit to the site on 15th July 2008. The report dated 22nd July 2008 shows that the representative of M/s.Insight Print Communications Pvt Ltd identified the machinery. The report records that the representative of the petitioner showed the machinery to the representative of the Court Receiver. 11. The orders passed by this Court on 10th, 16th and 17th July 2008 were in relation to the machinery more particularly described in the arbitration petition. The reports of the Court Receiver show that the machinery which is taken over does not have the chassis number and the engine number described in the petition as well as in the Hypothecation Agreement relied upon by the petitioner. The role of the Receiver is very limited. The Receiver could have taken the possession of the machinery having the description in the petition 13 on which the orders were passed. If the machinery bearing the said chassis number and engine number was not available, it was the duty of the Court Receiver to submit a report to this Court and seek further directions. Instead of seeking further directions, the Court Receiver relied upon the representative of the petitioner and the manufacturer of the machine and proceeded to take custody of the machinery though the machinery was not bearing the chassis number and the engine number as set out in the petition as well as Hypothecation Agreement relied upon by the petitioner. The Court Receiver could not have taken possession of the machinery bearing serial number more particularly described in the receipt annexed to the Receiver’s report. In my view, the Receiver has committed an error by taking possession of the machinery. In such matters the Receiver has to be cautious and in case a doubt is created regarding identification of the property, the Receiver has to seek directions from the Court before taking possession. 12. As pointed out earlier, the intervenor has no objection if the machinery is sold by the Receiver. The learned counsel appearing for the petitioner has no objection for sale of machinery and infact the prayer in 14 the petition under section 9 is for the sale of the machinery. However, her submission is that machinery may be ordered to be sold and the petitioner may be permitted to receive the sale proceeds. 13. There is prima facie material on record to show that there is an Hypothecation Agreement in favour of the intervenor in respect of machinery of which possession is taken over by the Court Receiver. The intervenor has a right to file appropriate proceedings for establishing her rights on the basis of the alleged Hypothecation Agreement. To enable the intervenor to file appropriate proceedings and to obtain appropriate order, though the machinery is sold by the Court Receiver, the petitioner cannot be permitted to withdraw the sale proceeds for a reasonable time. 14. As far as the Chamber Summons is concerned, it seeks to amend the petition for incorporating the alleged correct description of the machinery. The amendment will have to be allowed. Even if the amendment is allowed, it is obvious that the petitioner will have to establish its case of hypothecation of the machinery. 15 15. Hence, I pass the following order: (1) The Chamber Summons No.1653 of 2008 is made absolute in terms of prayer clauses (a) and (b). Amendment to be carried out within a period of four weeks. (2) Notice of Motion No.2618 of 2008 is disposed of by passing following order: (i) The Court Receiver, High Court, Bombay is directed to sell the machinery in his custody which is at present kept in the godown of the petitioner. The sale shall be made by public auction. (ii) After holding a public auction, the Court Receiver will deposit the sale proceeds with the Prothonotary and Senior Master of this Court after deducting the expenses incurred on the process of sale. It is made clear that costs and charges of the Court Receiver will have to be paid by the petitioner. 16 (iii) It is made clear that no adjudication is made on the rights claimed by the intervenor and it will be open for the intervenor to file appropriate proceedings for establishing her alleged right in respect of machinery which is ordered to be sold. (iv) To enable the intervenor to file appropriate proceedings and to obtain appropriate order, the Prothonotary and Senior Master, High Court, Bombay will allow the petitioner to withdraw the amount of sale proceeds for a period of four weeks from the date of deposit of the sale proceeds by the Court Receiver. (v) In the event no order is obtained by the intervenor as regards the said amount within a period of four weeks from the date of deposit of the said amount with the Prothonotary and Senior Master, it will be open for the petitioner to withdraw the amount deposited with the Prothonotary and 17 Senior Master, High Court, Bombay. (vi) The parties, the Prothonotary and Senior Master and the Court Receiver to act upon an authenticated copy of this order. (vii) The Court Receiver, High Court, Bombay will note the observations made in paragraph no.11 and will ensure that such error is not repeated. (A.S.Oka,J)