IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 19-10-2010 CORAM THE HON'BLE MR. JUSTICE P.JYOTHIMANI Application Nos. 70 and 71 of 2010 ORDER These applications are filed under Section 9 of the Arbitration and Conciliation Act by the applicants, challenging the order of the Sole Arbitrator dated 24.09.2009 made in I.A.No.1 of 2009, by which, the Arbitrator has dismissed the applications praying the Arbitral Tribunal to seek assistance of the Court to record the evidence by summoning certain witnesses who are stated to be relevant for deciding the Arbitral dispute. 2. The first respondent, M/s Indus Ind Bank who got merged with M/s Ashok Leyland Financier with effect from 01.04.2003 by a scheme of amalgamation, has raised a dispute before the second respondent Sole Arbitrator, in respect of an amount of loan extended to the applicants herein. The loan amount was extended to the applicants who are borrowers, out of whom the second applicant stood as guarantor and the amount financed was Rs.3,60,000/- and the total amount arrived at was Rs.4,71,000/- for the purchase of a vehicle repayable in 35 monthly instalments as per the loan agreement dated 09.03.2005 and the last instalment due was on 09.01.2008. As per the agreement, if the amount is not repaid within the time, there was a provision for additional interest by way of liquidated damages at 36% p.a.. Since the instalments were not paid properly, it is stated that the first respondent financier has taken possession of the vehicle and made a demand for the balance amount. Since the amount was not paid, the vehicle was sold on 30.09.2006 for an amount of Rs.1 lakh and even after the appropriation of the said amount, there was a balance amount of Rs.1,96,153.43 liable to be paid by the applicants as on 09.01.2008. Since the amount was not paid, as per Clause 23 of the agreement, the dispute was referred by the first respondent to the second respondent, Sole Arbitrator, for a direction against the applicants to pay the amount of Rs.1,96,153.43 with interest at 36% p.a. from 09.01.2008. 3. For the claims filed by the first respondent, the applicants have filed their objections. The main objection being that the entire amount of loan due to the first respondent has been paid in full in acknowledgment of which, the Regional Transport Officer Karunagappally has made an endorsement as to the termination of hypothecation based on 'No objection Certificate' stated to have been issued by the financier, suppressing the same, the dispute has been raised and the vehicle has been illegally sold for an amount of Rs.1 lakh alleging that a fraud has been played by the first respondent bank in not only selling the vehicle, but also raising a dispute. The applicants have preferred an application before the Arbitrator under Section 27 of the Arbitration and Conciliation Act 1996 (hereinafter referred to as the Act) praying the Arbitrator to seek assistance of the Court to record evidence by summoning all relevant witnesses including the officials who made endorsement as to the termination of the Hire Purchase Agreement in the office of the Regional Transport Office, Karunagappally. That application was resisted by the first respondent bank on the ground that such examination of witnesses are not necessary, since the applicants have to prove otherwise through documents, if the loan amount has been discharged and hypothecation stands terminated. It was the case of the first respondent bank that the dispute was based on the written contract and other documents filed by the parties and therefore there is no necessity to seek assistance from the Court to take evidence of third parties and therefore according to the first respondent, the application was an abuse of process of law and that application filed by the applicants under Section 27 of the Act came to be rejected by the second respondent Arbitrator, against which the present applications are filed. 4. A reference to the impugned order passed by the Arbitrator shows that the Arbitrator has taken note of the fact that the applicants who were invoking the powers under Section 27 2(c) of the Act have not chosen to describe the nature of documents which are required to be produced or the persons who are to be examined as witnesses. Even though the nature of document was specifically stated in the written argument submitted by the applicants, having found that the dispute was raised based on the written contract and documents have been filed by both the sides, the Arbitrator has come to the conclusion that any inconsistency as alleged in the documents can be always controverted which does not require any oral evidence which according to the learned Arbitrator is not going to enhance the evidentiary value of such documents filed before him. With this view, having come to the conclusion that the applicants have failed to prima-facie establish the relevancy of the witnesses and necessary documents, the application came to be rejected. That order has been challenged by the applicants on various grounds including that the suppression of material facts stated to have been committed by the first respondent bank cannot be either proved or disproved by producing the documents unless the witnesses are examined to substantiate the contents in the said document and that the original documents are with the transport authorities and therefore unless the original documents are summoned and produced before the Arbitrator, the fraud committed by the first respondent bank cannot be substantiated and therefore the evidence of the officials are required and it is the further case of the applicants that the very purpose of incorporating such power under Section 27 of the Act is to help such nebulous situation. 5. It is the case of the first respondent as it is seen from the counter affidavit that the contract under which the amounts were claimed by the first respondent financier are written signed by the parties including the applicants and in fact by virtue of the powers of re-possession, the vehicle was possessed by the first respondent bank for non re-payment of the amount as per the terms of the contract and it was sold after following the procedure and the amount was appropriated, the Arbitrator was appointed as per the terms of contact and after due notice to the applicants. It is denied that the applicants have discharged the entire obligation under the loan agreement and it is also the case of the first respondent that the first respondent bank has never issued "No objection Certificate" to the applicants. It is stated that after the sale was effected by public auction in order to confer title in respect of the vehicle to the purchaser on receiving the sale consideration which was adjusted towards the part payment payable by the applicants, the first respondent bank has issued 'No Objection Certificate' in favour of the auction purchaser only to effect change in the Registration document so as to use the vehicle by the auction purchaser legally and even after the sale was effected, an amount of Rs.1,96,153.43 was due and it was for that purpose, the statement of account has been filed before the Arbitrator. Therefore, according to the first respondent, no useful purpose would be served by examining any witnesses from the Regional Transport Office and therefore the application is an abuse of process of law. It is also stated that even if ultimately the award is passed, the parties are entitled to challenge the validity of the same under Section 34 of the Act. 6. The point raised by the applicants as to whether notice was received before referring the dispute before the Arbitrator or not is not the subject matter in this application, since this application has been filed under Section 9 of the Act, challenging the order passed by the Arbitrator in rejecting the application filed by the applicants under Section 27 of the Act. 7. Section 27 of the Act has been incorporated so as to enable the Arbitral Tribunal to have evidence of third parties to be recorded only after the specific permission granted by the Court. The reason being that as per the Arbitration Act, it is only the parties to the Arbitration agreement who can raise any dispute that may arise in respect of defined legal relationship whether contractual or not, as it is enunciated under Section 7(1) of the Act, which is as follows: 7.Arbitration Agreement:- (1)In this part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not." 8. When a dispute is raised between the parties under the Arbitration Agreement, as per the clause in the agreement, if it is referred to the Arbitrator or when an Arbitrator is appointed by the parties by exercising their power as per Section 8 of the Act, the dispute has to be adjudicated by the Arbitrator only between the parties and the scope of the Arbitrator in conducting enquiry is limited only based on the Arbitration agreement and therefore the Arbitrator cannot call for third parties either to give evidence before them or to direct them to produce any records. It is only in those circumstances, when the Arbitrator is required to arrive at a conclusion regarding the dispute referred to him, by calling the third parties either to give evidence or produce documents, the way open to him is as enshrined under Section 27 of the Act, by which, either the Arbitrator or the party to the dispute, can apply to the Court for assistance in taking the evidence. For appreciation of the position, it is relevant to extract Section 27 which is as follows: "27.Court assistance in taking evidence- (1) The Arbitral tribunal, or a party with the approval of the arbitral Tribunal, may apply to the Court for assistance in taking evidence. (2) The application shall specify- (a) the names and addressees of the parties and the arbitrators; (b) the general nature of the claim and the relief sought; ) the evidence to be obtained, in particular,- (i) the name and address of any person to be heard as witness or expert witness and a statement of the subject-matter of the testimony required; (ii) the description of any document to be produced or property to be inspected. (3) The Court may, within its competence and according to its rules on taking evidence, execute the request by ordering that the evidence be provided directly to the arbitral tribunal. (4) The Court may, while making an order under sub-section (3), issue the same processes to witnesses as it may issue in suits tried before it. (5) Persons failing to attend in accordance with such process, or making any other default, or refusing to give their evidence, or guilty of any contempt to the arbitral tribunal during the conduct of arbitral proceedings, shall be subject to the like disadvantages, penalties and punishments by order of the Court on the representation of the arbitral tribunal as they would incur for the like offences in suits tried before the Court. (6) In this section the expression "Processes" includes summonses and commissions for the examination of witnesses and summonses to produce documents. 9.As per Section 27(1) of the Act, when a party approaches the Arbitral Tribunal, seeking direction to the Tribunal to apply for the assistance in taking evidence, necessarily it requires approval of the Arbitral Tribunal and in fact it is squarely for that purpose, applicants have filed such application before the Arbitral Tribunal under Section 27(1) of the Act. As required under Section 27(2) of the Act, while a party makes such application, it is incumbent on its part to explain the specific name of the person who is sought to be examined as witness and also give proper description of the document to be produced or to be inspected. It is no doubt true that while granting approval, the Arbitral Tribunal has to necessarily apply its mind to find out the relevancy of such witness or such document. 10.It is the contention of the learned counsel appearing for the applicants that even in the claim statement filed by the first respondent before the Arbitrator, the first respondent financier has not chosen to state any particulars as to whom the vehicle was sold by public auction and what steps have been taken for the purpose of bringing the vehicle for sale. Therefore, according to the learned counsel for the applicants, the necessity of examining the official of Regional Transport Office who have made endorsement as to terminating the hypothecation is an absolute one. Therefore, it is required to summon the document from the department. According to him, the production of documents and examining the official witnesses are relevant and therefore he would contend that the rejection of the application is improper. 11. The learned counsel for the applicants has placed reliance upon the Judgments reported in 2008 AIOL 2094(SC)(Union of India & another Vs. Raunaq International Ltd.) 2009 AIOL 2058 (SC) (Union of India & Others Vs.Onkar Nath Bhalla & Sons), apart from AIR 1999 SC 565 (M/s Sundaram Finance Ltd., Vs. M/s NEPC India Ltd.,) and AIR 2004 SCW 366 (Firm Asholk Traders and another etc., Vs. Gurumukh Das Saluja and others etc.). 12. On the other hand, it is the contention of the learned counsel for the first respondent financier that even if the case of the applicant is that the Arbitral Tribunal has not been properly constituted, the same cannot be a ground raised at this stage and it is only after the award is passed, the applicant can raise such an issue. He would also submit that the very fact that 'No Objection Certificate' has been given to the purchaser after the sale is not denied and the same is available on record, it does not require any order for recording evidence or for direction to produce any documents. In fact, it is clear that as it is seen in the application filed by the applicant under Section 27 of the Act before the Arbitral Tribunal that the petition even though has stated that there has been some endorsement in the Registration certificate in respect of the vehicle terminating the Hire Purchase agreement, there are absolutely no particulars about the person to be examined as a witness or documents to be directed to be produced from whom and from which authority. The prayer before the Arbitrator made by the applicants is simple as follows: "Therefore, it is humbly requested that this Hon'ble Arbitrator may be pleased to seek the assistance of Court to record evidence by summoning the witnesses and thus render justice." 13. As elucidated above, in the counter affidavit filed by the first respondent to the above said application before the Arbitrator, the first respondent before the Arbitrator has taken a definite stand which is as follows: "6. It is submitted by the respondents/claimants that the petitioner under Sec.27 has been filed ostensibly for the purpose of examining the claimants official who has made an endorsement has to the alleged termination of the hypothecation Agreement. Even assuming without admitting that, the hypothecation Agreement has been terminated the said fact if any, can be proved by the documents. As stated above, the entire dispute is based on a written contract and above, the entire dispute is based on a written contract and other documents filed by both the parties and as such there is no necessity for seeking the assistance of Court for taking evidence especially when no new facts can emerge by examining the said official and letting in such oral evidence." 14. The claim made before the Arbitrator by the first respondent is in respect of an amount of Rs.1,96,153,43 which is stated to be the balance amount due to be adjusted in the sale price in respect of the vehicle at Rs.1 lakh, stated to be sold by the first respondent on 30.09.2006. Whether such sale was effected in the manner known to law, can no doubt be decided by the Arbitrator in the final award, after appreciation of entire facts and documents filed. It is no doubt true that on the specific stand of the first respondent bank that the vehicle was already sold on 30.09.2006 and the amount was appropriated. Even if it is taken that based on the sale effected by the first respondent, in order to give better title to the purchaser of the vehicle, the hypothecation agreement was terminated at the instance of the first respondent bank, it is not as if the liability of the applicants towards the first respondent financier comes to an end under the loan agreement. 15. The relevancy of the powers conferred to the Arbitrator under Section 27 of the Act to approach the Court seeking permission to record evidence came to be considered by this Court in H.G.Oomor Sait and another Vs. O.Aslam sait reported in 2001 (3)CTC 269 .While referring about the dissolution of partnership and rendition of accounts, in the light of allegation of fraud raised between the parties, it was observed that since the Arbitrator need not be a law knowing person, the Civil Court is the appropriate forum to decide such intricate issue regarding the fraud which requires appreciation of evidence, further observing as follows: "Section 27 of the 1996 Act provides for the Arbitrator to seek the assistance of the Court in taking evidence is an example of the admitted deficiencies of a proceeding before the arbitrator." 16. In Sime Darby Engineering SDN BHD. Vs. Engineers India Limited, reported in (2009) 7 SCC 545, while deciding about the construction of intention of parties by the Arbitrators, the Supreme Court has held that Section 27 enables the Arbitral Tribunal to seek the assistance of Court to take evidence of experts required. "30.It is clearly provided in the said Act that an Arbitral Tribunal can, if necessary, take the help of experts in terms of Section 27 of the said Act. If the sole arbitrator requires the assistance of an expert he can always take such assistance." 17. Therefore, it is clear that Arbitral Tribunal which is not necessarily to be comprised of legally qualified persons, since the same is as per the desire of the parties to the contract under the agreement, it is normally in order to enable such Arbitral Tribunal to have certain aspects which require legal description to be clarified either by oral evidence or summoning documents by enabling it or the party to the Arbitral dispute to approach the Court for order under Section 27 of the Act. Therefore, the reliance placed by the learned counsel for the applicant on the judgment in M/s Sundaram Finance Ltd., Vs. NEPC India Ltd., reported in AIR 1999 SC 565 is not applicable to the facts of the present case. That was a case where the scope of Section 9 of the Act was elucidated by the Hon'ble Supreme Court to the effect and inconsonance with Section 21 of the Act stating that the said provision has been made only to enable a party to get an interim relief urgently in order to protect his interest. Inasmuch as it is not even the case of the first respondent herein that the application filed by the applicants under Section 9 of the Arbitration and Conciliation Act is not maintainable, the reliance placed on the said judgment of the Supreme Court by the learned counsel for the applicants is of no assistance to the applicants at all. Even otherwise, under Section 9(ii)(e) of the Act, the Court has jurisdiction to pass "such other interim measure of protection as may appear to the Court to be just and convenient" 18. Again reliance was placed by the learned counsel for the applicant on the Judgment of the Supreme Court in 2009 AIOL 2058 (SC) reported in Union of India & Ors. Vs. Onkar Nath Bhalla & Sons which relates to the appointment of Arbitrator by the Chief Justice under Section 11 of the Act, which is not applicable to the facts of the present case. Again a reference was made to the Judgment of the Supreme Court which was following Section 20 of Arbitration Act, 1940 in Union of India & another Vs. Raunaq International Ltd., reported in 2008 AIOL 2094 wherein the question of Arbitrability was discussed in extenso. 19. The facts of the present case are very simple on the pleadings wherein the dispute is in respect of the recovery of an amount due to the first respondent financier in which the Arbitral Tribunal is yet to decide about the validity or otherwise of the sale of the vehicle stated to have been effected by the first respondent in furtherance of taking repossession of the vehicle for non-payment of the amount and in such circumstances, the application filed under Section 27(1) of the Act seeking assistance of the Court either to receive the document or to record the evidence, does not arise. When the documents are placed by both the parties before the Arbitral Tribunal, if the Tribunal comes to a conclusion either about any endorsement in the document or any fraudulent intention is attributed by virtue of alteration or addition and if the Arbitral Tribunal entertains any doubt about the genuineness or otherwise of such document which may require an expert opinion, it is for the Tribunal to approach the Court under Section 27 of the Act. As correctly submitted by the learned counsel for the first respondent, after the sale was effected by the first respondent by exercising its power of re-possession, it is the duty of the first respondent to give title to the purchaser and it was to enable such title to be given to the purchaser if, at the instance of the first respondent, the endorsement as to the termination of hypothecation has been made, the larger question yet to be decided is as to whether in spite of such endorsement having been made, the applicants are still liable to pay the amount under the loan agreement to the first respondent and that dispute is to be decided ultimately by the Tribunal. In the absence of any finding by the Arbitral Tribunal about the validity or otherwise of the sale effected by the first respondent financier, certainly, it is not possible to accept the contention of the applicants that the documents are to be directed to be produced before the Arbitrator or evidence is directed to be adduced before the Arbitrator, even in respect of the alleged endorsement made in the Registration certificate. It is not as if the applicants have no right to raise the said issue after the award is passed by the Arbitrator. 20. Therefore, the application filed by the applicants before the Arbitrator under Section 27 of the Act is totally misconceived and I do not see any reason to interfere with the order of the Arbitrator, the second respondent and accordingly the applications fail and the same are dismissed. VJY