IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.S.SATHEESACHANDRAN FRIDAY, THE 20TH NOVEMBER 2009 / 29TH KARTHIKA 1931 WP(C).No. 17033 of 2009(O) -------------------------- I.A.3475/08 IN OS.233/2008 of MUNSIFF COURT, HOSDRUG .................... PETITIONER: --------------- M/S TML FINANCIAL SERVICES LTD., HAVING ITS BRANCH OFFICE AT S.L. PLAZA, GROUND FLOOR, PALARIVATTOM, COCHIN -25, REP. BY ITS POWER OF ATTORNEY HOLDER, SUBHA MADHAVAN, LEGAL HEAD, KERALA STATE. BY ADV. SRI.RAJESH THOMAS SRI.JIJO JOSEPH RESPONDENT: --------------- MR. VINOD KUMAR, S/O. V. NARAYANAN, KOKKOD HOUSE, P.O. KATTIPOYIL, NILESHWAR VILLAGE HOSDURG TALUK, KERALA. ADV. SRI.T.MADHU THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 30/10/2009, THE COURT ON 20/11/2009 DELIVERED THE FOLLOWING: APPENDIX(WPC 17033/09) PETITIONER'S EXTS.: EXT.P1: THE TRUE COPY OF THE LOAN/ARBITRATION AGREEMENT DATED 31.03.2007 EXECUTED BETWEEN THE PETITIONER AND RESPONDENT. EXT.P2: TRUE COPY OF THE KACHEET OF RELEASING THE VEHICLE FROM THE NILESHWAR CIRCLE INSPECTOR OF POLICE DATED 24.10.2007. EXT.P3: TRUE COPY OF THE O.S.NO.233/08 FILED BY THE RESPONDENT BEFORE THE MUNSIFF COURT, HOSDURG DATED 30.6.2008. EXT.P4: TRUE COPY OF THE I.A.NO.3475/08 IN O.S.NO.233/08 FILED UNDER SECTION 8 OF THE ARBITRATION & CONCILIATION ACT, 1996. EXT.P5: TRUE COPY OF THE DISMISSAL ORDER DATED 17.11.2008 IN I.A.NO.3475/08 IN O.S.NO.233/08. RESPONDENT'S EXTS.: EXT.R1(a): TRUE COPY OF THE PRIVATE CRIMINAL COMPLAINT FILED BY THE RESPONDENT HEREIN BEFORE THE COURT OF THE LEARNED JUDICIAL FIRST CLASS MAGISTRATE COURT, HOSDURG DATED 23.11.2007. EXT.R1(b): TRUE COPY OF THE PETITION DATED 23.11.07 IN CMP.NO.3364/07 ON THE FILE OF THE JUDICIAL FIRST CLASS MAGISTRATE COURT, HOSDURG. EXT.R1(c): TRUE COPY OF THE ORDER DATED 11.1.2008 IN W.P.C.NO.37276/07 OF THIS HON'BLE COURT. EXT.R1(d): TRUE COPY OF THE PETITION DATED 27.2.2008 FILED BY THIS RESPONDENT BEFORE THE HON'BLE JUDICIAL FIRST CLASS MAGISTRATE COURT, HOSDURG. S.S. SATHEESACHANDRAN, J. - - - - - - - - - - - - - - - - - - - - - - - - - W.P.(C) No.17033 of 2009 - - - - - - - - - - - - - - - - - - - - - - - - - Dated: 20th November, 2009 JUDGMENT The Writ Petition is filed seeking mainly the following relief: “To set aside/reverse the order dated 17.11.2008, passed by the learned Court of the Munsiff of Hosdurg in the Interlocutory Application No.3475 of 2008 in Original Suit No.233 of 2008, titled as “Mr.Vinod Kumar V. vs. M/s.TML Financial Services Ltd.” and may consequently be pleased to allow the application filed by the petitioner under Section 8 of the Arbitration and Conciliation Act, 1996, thereby referring the matter to arbitration, to be conducted by the Arbitrator.” 2. Petitioner is the defendant in O.S.No.233 of 2008 on the file of the Munsiff Court, Hosdurg, and the respondent, the plaintiff. Suit is one for damages for a sum of Rs.50,000/- and also for a declaration that the plaintiff is not liable to repay the outstanding instalments defaulted on the loan availed from the defendant for the purchase of a vehicle in view of its illegal seizure by the defendant. P3 is copy of the plaint in the above suit. Petitioner/defendant, on appearance, moved an application for stay of the suit contending that W.P.C.No.17033/09 - 2 - the parties are governed by an arbitration agreement, and therefore, all disputes and differences are to be resolved only by a reference to arbitration. P4 is the copy of that application. Arbitration agreement entered between the parties was also produced with that petition. P1 is the copy of that agreement. Respondent/plaintiff filed a counter that the dispute presented before the court for adjudication does not fall under the arbitration agreement, and therefore, Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') has no application to the case. The learned Munsiff, after hearing both sides, upheld the contention raised by the respondent/plaintiff and dismissed P4 petition. P5 is the copy of that order. Propriety and correctness of that order is challenged in the Writ Petition invoking the supervisory jurisdiction vested with this court under Article 227 of the Constitution of India. 3. I heard the learned counsel on both sides. Learned counsel for the petitioner submitted that the petitioner is a non banking financial company engaged in the business of finance. Since the respondent had defaulted in payment of the instalments due for the financial assistance provided by the petitioner/company to purchase a vehicle in terms of the hire purchase agreement under which the W.P.C.No.17033/09 - 3 - vehicle stood hypothecated to the petitioner/company, with the assistance of the police, the vehicle was seized and later, it was released by the police to the petitioner/company under P2 kachit. The agreement executed by the parties for providing financial assistance to the defendant to purchase the vehicle, copy of which is produced as P1, it is submitted clearly spell out that the disputes and differences, if any, between them in respect of the loan arrangement have to be resolved by way of arbitration. P3 suit filed by the respondent/plaintiff claiming damages and also for declaration that he is not liable to pay the defaulted instalments of the loan, according to the learned counsel, is not maintainable, and the civil court has no jurisdiction to adjudicate on the dispute canvassed, as such disputes have to be resolved only by the process of arbitration as provided under the agreement between the parties. On the other hand, learned counsel for the respondent/plaintiff contended damages is claimed in view of the illegal seizure of the vehicle and that is not a matter falling under dispute or difference as covered by the arbitration agreement. The arbitration agreement entered between the parties in respect of the loan arrangement cannot oust the jurisdiction of the civil court to entertain the suit for damages and W.P.C.No.17033/09 - 4 - adjudicate the issues involved thereunder when the suit claim is based on seizure of the plaintiff's vehicle illegally, submits the learned counsel. Civil court has competency to go into the question whether the dispute is covered by the agreement containing the arbitration clause and then decide its jurisdiction to entertain the suit, according to the counsel. Reliance is also placed on Vijaya Narayanan v. Prabhakaran (2006(1) KLT 797) rendered by this court, which has been followed by the court below as well to contend P5 order passed by the learned Munsiff, in the given facts of the case, does not call for any interference in exercise of the visitorial jurisdiction vested with this court. 4. The question posed for consideration is as between the parties to an agreement containing an arbitration clause whether the jurisdiction of the civil court to entertain a suit or proceeding over a dispute, the cause of action of which is stated as based on acts of the other imputed as illegal and opposed to public policy, stands ousted by the statutory interdiction under Section 5 of the Act. In examining that question, the scope and ambit of Sections 5 and 8 of the Act vis-a-vis the jurisdiction of the civil court to entertain a dispute of a civil nature with special emphasis to Section 9 of the W.P.C.No.17033/09 - 5 - Code of Civil Procedure, and the dispute canvassed for adjudication in the suit in relation to the agreement containing an arbitration clause entered by the parties in the backdrop of the case presented for the reliefs claimed cannot be lost sight of. Specific case imputed by the respondent/plaintiff for the reliefs claimed in the suit is that the vehicle covered by the hire purchase agreement was illegally seized by the petitioner/defendant, and so much so, the defendant company is liable for damages and also that the plaintiff is entitled to get a declaration that he is not liable to repay the defaulted instalments outstanding under the loan. Whatever be the merit of the case canvassed by the plaintiff, which, of course, can be decided only after trial, the question is whether the dispute presented for adjudication before the court fall within a dispute or difference between the parties as amenable to arbitration. Even if the agreement containing the arbitration clause empowers the finance company to seize the vehicle in the event of default in payment of the instalments, it cannot do so illegally as the seizure of the vehicle can be done only under due process of law. If the vehicle had been illegally seized, as alleged, even if the agreement between the parties provides for seizure by whatever means, such seizure cannot be countenanced as it is W.P.C.No.17033/09 - 6 - against public policy. Was there an illegal seizure of the vehicle or not is a matter that require to be adjudicated upon. The defendant company, of course, has got a case that it got release of the vehicle under P2 kachit from the police. The defence so canvassed can be appreciated only in trial of the case. The arbitration clause in the agreement cannot be put forward as a shield when one of the parties to the agreement commit an act opposed to public policy and per se illegal and cause injury to the other party. In such circumstances, the civil right of the injured party to seek compensation or damages from the wrong doer over and above initiating appropriate criminal proceedings has to be recognised and given effect to. He cannot be denied of that right for the sole reason that he has entered an agreement with the other party containing an arbitration clause, and so much so, he has to work out his remedies only by way of arbitration. The nature of the act imputed and the cause which require to be adjudicated cannot be eschewed from consideration in deciding whether Section 8 of the Act has application to the suit or proceeding presented before the court even if the parties had entered into an agreement containing an arbitration clause, and it has some nexus with the dispute presented and the reliefs claimed. W.P.C.No.17033/09 - 7 - 5. Section 8 of the Arbitration and Conciliation Act reads thus: “8. Power to refer parties to arbitration where there is an arbitration agreement:- (1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. (2) The application referred to in subsection (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. (3) Notwithstandng that an application has been made under subsection (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.” Section 8 referred to above empowers a judicial authority to refer parties to arbitration when an action brought before it is the subject matter of an arbitration agreement. Whereas in the old Act as under Section 34 of the Arbitration Act, 1940, the stay of proceedings was discretionary, the reference of disputes to arbitration in a matter which is subject to an arbitration agreement, is mandatory under this W.P.C.No.17033/09 - 8 - Section. The old Act for stay of the proceedings by the court mandated the party applying for such stay to satisfy the court not only that he is but also that he was ready and willing to do everything necessary for the proper conduct of the arbitration even at the time of commencement of the proceedings. No such burden is now cast upon the party seeking the reference to arbitration in matter which is the subject of an arbitration agreement under Section 8 of the Act. However, the section postulate that what can be referred to an arbitrator is only the dispute or matter which the arbitrator is competent or empowered to decide. It must be shown the matter covered by the action before the court is the subject matter of an arbitration agreement and further, apart from satisfying the condition stated in the provision for a reference of the parties to the arbitration before making an order of reference the court has to come to a finding that action brought before it is the subject matter of an arbitration agreement and the court cannot on the mere asking of a party refer the parties to arbitration. If the court does not satisfy itself regarding the existence of an arbitration agreement and also that the matter in action brought in the suit or proceedings is the subject matter of an arbitration agreement a reference under Section W.P.C.No.17033/09 - 9 - 8 of the Act may cause grave prejudice to the party who has approached the court and arbitrary proceedings commenced in such cases will result in anathema to fundamental justice and rule of law. 6. Ext.P1 is the agreement entered by the parties in respect of the financial assistance provided by the petitioner company to the respondent for purchase of the motor vehicle. Clause 23 of the agreement is relied upon as the arbitration clause for reference of the disputes difference of claims in respect of the transaction to arbitration. Clause 23 of Ext.P1 agreement reads thus: “All disputes, differences and/or claims arising out of this Loan Agreement or as to the construction, meaning or effect hereof or as to the rights and liabilities of the parties hereunder shall be settled by arbitration to be held in Mumbai in accordance with the Arbitration and Conciliation Act 1996, or any statutory amendments thereof and shall be referred to a person to be appointed by the Lender. In the event of death, refusal, neglect, inability, or incapacity of the person so appointed to act as an Arbitrator, the Lender may appoint a new arbitrator. The award of the arbitrator shall be final and binding on all parties concerned.” Ext.P1 is styled as 'Loan cum Hypothecation cum Guarantee W.P.C.No.17033/09 - 10 - Agreement'. Clause 17 of Ext.P1 agreement stipulates that in the event of defaults named thereunder the amount due under the loan shall immediately become due and payable irrespective of any other conditions agreed upon. Clause 18 dealing with the consequences of event of default further specifies the entitlement of the lender in such situation “to take possession, seize, recover, appoint a receiver/manager, remove the asset from the place of standing and also be entitled, on such terms as may be deemed fit by the Lender without the intervention of the court or authority, to sell the asset by public auction or by private contract.” Even assuming that Ext.P1 agreement containing the arbitration clause executed over the motor vehicle enable the petitioner company (Lender) to seize the vehicle otherwise than in due process of law, if force is resorted to for such seizure, which is the imputation made in the plaint to contend that there was an illegal seizure of the vehicle, it cannot be stated that the dispute between the parties arising thereof is a matter falling within the subject matter of an arbitration agreement. An agreement opposed to public policy cannot give rise to any valid legal action or defence. In this context, it is appropriate and profitable to take note of the observations of the W.P.C.No.17033/09 - 11 - Apex Court in Sukanya Holdings (P) Ltd. v. Jayaesh H. Pandya and Another [(2003) 5 SCC 531] wherein it has been held that even in a case where a suit is commenced in respect of a matter which falls partly within the arbitration agreement and partly outside the jurisdiction of the civil court is not ousted, and the word 'matter' in Section 8 of the Act, it is held, contemplate that the entire subject matter of the suit should be subject to arbitration agreement. In the above decision it has been stated thus: “The relevant language used in Section 8 is: “in a matter which is the subject of an arbitration agreement” the court is required to refer the parties to arbitration. Therefore, the suit should be in respect of “a matter” which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced - “as to a matter” which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section 8. The words “a matter” indicate that the entire subject- matter of the suit should be subject to arbitration agreement.” Illegal seizure of the vehicle being the dispute canvassed by the W.P.C.No.17033/09 - 12 - respondent/plaintiff in the suit for adjudication to claim damages it is not “a matter” covered by the arbitration clause under the hypothecation agreement and as such reference to Section 8 of the Act is not called for as it is not a matter required to be referred to arbitration. 7. Any question regarding the ouster of jurisdiction of a civil court must be examined with respect to the scheme of the Act which is pressed into service as ousting the jurisdiction, having due regard and emphasis as to the object and purport which that Act seeks to achieve. It is also well settled that a plea of bar to jurisdiction of a civil court must be considered having regard to the allegations raised in the plaint. The averments in the plaint disclosing the cause of action and the reliefs sought for therein must be considered in their entirety. It is not proper for the court in examining the question of ouster of jurisdiction one way or the other only on the basis of the reliefs claimed de hors the factual basis of the claim raised by the averments made in the plaint. Section 9 of the Code of Civil Procedure unequivocally states that the civil court shall have jurisdiction to try all suits of civil nature excepting suits of which their cognisance is either expressly or impliedly barred. So much so, the W.P.C.No.17033/09 - 13 - averments made in the plaint disclosing the cause of action have to be taken into consideration to determine whether the suit is cognisable by the civil court or not. It is also to be noted that there is a vast of difference between inherent lack of jurisdiction on account of the bar under any statute or in view of the agreement by the parties binding themselves to have their disputes decided by arbitration. It is open to the parties to agree before hand as to how the disputes or differences arising between them have to be resolved, either by court or through arbitration or conciliation. However, it has to be noted that the terms of any contract between them as to the forum for determination or adjudication of their disputes, whether it be the regular court or the arbitrary tribunal as under the Arbitration and Conciliation Act can bind them only where the terms of the contract are not against the public policy. The hypothecation agreement over the vehicle for which finance was advanced by the petitioner finance company to the respondent/plaintiff provides for arbitration in the event of disputes or differences between them and seizure of the hypothecated vehicle in the event of default in payment of the instalments by the finance company cannot oust the jurisdiction of the civil court where a claim for damages is canvassed W.P.C.No.17033/09 - 14 - for seizure of the vehicle illegally. Even if seizure is permitted under the terms of the agreement, it can be done only lawfully and not otherwise. Illegal seizure of the vehicle, which is opposed to public policy, over and above giving rise to criminal proceedings against the offender will also enable the injured party to approach the civil court for damages and the civil court can entertain a civil suit subject to the well defined parameters settled by the constitution bench of the Supreme Court in Dhulabhai v. State of M.P. (AIR 1969 S.C. 78). 8. Observations made in the judgment, I make it clear, are not to be construed as any expression on the merit of the case of the plaintiff or of the defence set up by the defendant company, but, only that in a case of this nature where the suit claim is based on an act by the opposite party which is stated to be against public policy and thus illegal, existence of an arbitration agreement between the parties which has some nexus with the dispute presented before the court will not oust the jurisdiction of the civil court inviting an order for referring the parties to the suit under Section 8 of the Act. The finding entered by the learned Munsiff that Section 8 of the Act is not attracted in the suit, in the given facts of the case, has only to be approved, for the time being, subject to the final decision in the suit W.P.C.No.17033/09 - 15 - after trial. The question of seizure of the vehicle, if it was done legally by the finance company, and if it is so proved in trial of the suit, needless to point out, may give rise to the conclusion that any dispute relating thereto could be canvassed only by reference to arbitration. However, if it was an illegal seizure irrespective of the arbitration agreement between the parties, the dispute thereof require to be adjudicated in the suit by the court. That being so, at this stage, learned Munsiff was fully justified in concluding that Section 8 of the Act, in the given facts of the case, cannot be canvassed by the defendant company to resist the suit claim and an adjudication of the disputes thereunder by the civil court. Writ Petition lacks merit, and it is dismissed. srd/bkn S.S. SATHEESACHANDRAN, JUDGE