Case: M.D. Frozen Foods Exports Pvt. Ltd. &amp; Others Vs. Hero Fincorp Ltd

6. The appellants borrowed monies for their business against security of immovable properties by the creation of an equitable mortgage by deposit of title documents (seven such properties) on 30.09.2015 and 21.10.2015. The financial discipline was not adhered to, apparently almost from the inception, and the account of the appellants became aAsset (`NPA) within the meaning of Section 2(1)(o) of the SARFAESI Act on 6.7.2016 itself.7. The agreement inter se the parties contained an arbitration clause and thus, the matter went to arbitration on the lender/respondent invoking the arbitration clause on 16.11.2016. However, prior to this invocation, a notification was issued on 05.08.2016 in exercise of powers conferred under(iv) of clause (m) of(1) of Section 2 read with Section 31A of the SARFAESI Act, specifying certainFinancial Companies (hereinafter referred to as `NBFC) covered under clause (f) of Sectionof the Reserve Bank of India Act, 1934 (hereinafter referred to as the `RBI Act), having assets of Rs. 500 crore and above, as financial institutions and directing that, in public interest, the provisions of the SARFAESI Act shall apply to such financial institutions, with the exceptions of provisions of Sections 13 to 19, which shall apply only to such security interest which is obtained for securing repayment of secured debt with principal amount of Rs. 1 crore and above. The respondent is at serial No.68 of the said notification.8. In view of the aforesaid notification, the respondent issued a notice under Section 13(2) of the SARFAESI Act on 24.11.2016 for one of the seven properties. The statement of claim was filed by the respondent before the Arbitrator on 14.12.2016 and interim orders were granted by the Arbitrator on 05.01.2017 restraining the appellant from creating any third party interest over the properties. On 16.02.2017, the respondent issued another notice under Section 13(2) of the SARFAESI Act for two more of the seven properties.9. Insofar as the arbitration proceedings are concerned, the interim order of 05.01.2017 was confirmed on 03.03.2017. In order to remove any possible impediment in the SARFAESI proceedings, an application was filed by the respondent to substitute the order of status quo qua parties with the name of the appellants/borrowers, which was allowed on 19.05.2017.10. The appellants, aggrieved by this order, filed an appeal under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the `Arbitration Act), which has been dismissed by the impugned order dated 13.07.2017 of the learned Single Judge of the Delhi High Court.

Reasoning: 24.We have examined the rival contentions and the judicial precedents cited before us. The impugned order is aorder giving cogent reasons, but what persuaded us to grant leave and hear the matter finally, was this cleavage of judicial opinions inter se the High Courts, requiring this court to settle the law on the. These observations, thus, leave no manner of doubt and the issue is no more res integra, especially keeping in mind the provisions of Sections 35 and 37 of the SARFAESIThe aforesaid two Acts are, thus, complimentary to each other and it is not a case of election of remedy.30. The only twist in the present case is that, instead of the recovery process under the RDDB Act, we are concerned with an arbitration proceeding. It is trite to say that arbitration is an alternative to the civil proceedings. In fact, when a question was raised as to whether the matters which came within the scope and jurisdiction of the Debt Recovery Tribunal under the RDDB Act, could still be referred to arbitration when both parties have incorporated such a clause, the answer was given in the affirmative. (HDFC Bank Limited v. Satpal Singh Bakshi2013 (134) DRJ 566 (FB) That being the position, the appellants can hardly be permitted to contend that the initiation of arbitration proceedings would, in any manner, prejudice their rights to seek relief under the SARFAESI Act.31. The discussion in the impugned order refers to a judgment of the Full Bench of the Delhi High Court in HDFC Bank Limited v. Satpal Singh Bakshi, 2013 (134) DRJ 566 (FB) opining that an arbitration is an alternative to the RDDB Act. In that context, the learned Single Judge has rightly held that this Full Bench judgment does not, in any manner, help the appellants but, in fact, supports the case of the respondent. The jurisdiction of the Civil Court is barred for matters covered by the RDDB Act, but the parties still have freedom to choose a forum, alternate to, and in place of the regular courts or judicial system for deciding their inter se disputes. All disputes relating to the "right in personam" are arbitrable and, therefore, the choice is given to the parties to choose this alternative forum. A claim of money by a bank or a financial institution cannot be treated as a "right in rem", which has an inherent public interest and would thus not be arbitrable.32. The aforesaid is not a case of election of remedies as was sought to be canvassed by learned senior counsel for the appellants, since the alternatives are between a Civil Court, Arbitral Tribunal or a Debt Recovery Tribunal constituted under the RDDB Act. Insofar as that election is concerned, the mode of settlement of disputes to an arbitral tribunal has been elected. The provisions of the SARFAESI Act are thus, a remedy in addition to the provisions of the Arbitration Act. In Transcore v. Union of India & Anr. (supra) it was clearly observed that the SARFAESI Act was enacted to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith. Liquidation of secured interest through a more expeditious procedure is what has been envisaged under the SARFAESI Act and the two Acts are cumulative remedies to the secured creditors.33. SARFAESI proceedings are in the nature of enforcement proceedings, while arbitration is an adjudicatory process. In the event that the secured assets are insufficient to satisfy the debts, the secured creditor can proceed against other assets in execution against the debtor, after determination of the pending outstanding amount by a competent forum.34.We are, thus, unequivocally of the view that the judgments of the Full Bench of the Orissa High Court in Sarthak Builders Pvt. Ltd. v. Orissa Rural Development Corporation Limited, 2014 SCC OnLine Ori 75, the Full Bench of the Delhi High Court in HDFC Bank Limited v. Satpal Singh Bakshi (supra) and the Division Bench of the Allahabad High Court in Pradeep Kumar Gupta v. State of U.P., AIR 2010 All 3   lay down the correct proposition of law and the view expressed by the Andhra Pradesh High Court in M/s. Deccan Chronicles Holdings Limited v. Union of India, AIR 2014 Andhra Pradesh 78 following the overruled decision of the Orissa High Court in Subash Chandra Panda v. State of Orissa, AIR 2008 Ori 88   does not set forth the correct position in law. SARFAESI proceedings and arbitration proceedings, thus, can go hand in hand.Questions B & C35. The issue of whether resort can be had to Section 13 of the SARFAESI Act in respect of debts which have arisen out of a loan agreement/mortgage created prior to the application of the SARFAESI Act to the respondent, though urged before us, appears really not to have been canvassed before the learned Single Judge of the Delhi High Court. At least, it finds no substantive mention. We, however, are of the view that in the larger interest of settling the question of law, this issue is also required to be dealt with.36. The SARFAESI Act was brought into force to solve the problem of recovery of large debts in NPAs. Thus, the very rationale for the said Act to be brought into force was to provide an expeditious procedure where there was a security interest. It certainly did not apply retrospectively from the date when it came into force. The question is whether, the Act being applicable to the respondent at a subsequent date and thereby allowing the respondent to utilize its provisions with regards to a past debt, would make any difference to this principle. We are of the view that the answer to the same is in the negative.37. The Act applies to all the claims which would be alive at the time when it was brought into force. Thus, qua the respondent or other NBFCs, it would be applicable similarly from the date when it was so made applicable tofact the SARFAESI Act, in our view, was to remedy such a position and provide a measure against secured interests. The scheme of the SARFAESI Act, is really to provide a procedural remedy against security interest already created. Therefore, an existing borrower, who had been granted financial assistance was covered under Section 2(f) of the said Act as a `borrower. Not only this expression, the definition clauses dealing with `debt securities, `financial assistance, `financial assets, etc., clearly convey the legislative intent that the SARFAESI Act applies to all existing agreements irrespective of the fact whether the lender was a notified `financial institution on the date of the execution of the agreement with the borrower or not. The scheme of the SARFAESI Act sets out an expeditious, procedural methodology, enabling the bank to take possession of the property forof dues, without intervention of the court. The mere fact that a more expeditious remedy is provided under the SARFAESI Act does not mean that it is substantive in character or has created an altogether new right. To accept the argument of the appellants would imply that they have an inherent right to delay the enforcement against the security interest!39. The catena of judgments referred to by learned senior counsel for the appellants on substantive law not being retrospective in operation, unless expressly stated so in the Act would, thus, have no application to the matter in issue, in view of what we have observed aforesaid.Similarly, the date on which a debt is declared as an NPA would again have no impact. We are, thus, of the view that the provisions of the SARFAESI Act would become applicable qua all debts owing and live when the Act became applicable to the respondent in terms of the parameters contended by learned senior counsel for the respondent and enlisted at serial Nos. i to iv in para 18.