ORDER
B. Seshasayana Reddy, J.
1. This civil revision petition is directed against the order dated 5-1-2004 passed in I.A. No. 2019 of 2002 in O.S. No. 3392 of 2002 on the file of the X Junior Civil Judge, City Civil Court, Hyderabad by which the learned X Junior Civil Judge dismissed the application filed by the defendant under Section 8(1) of Arbitration and Conciliation Act, 1996 read with Section 151 C.P.C.
2. The petitioner herein is defendant and the respondent herein is plaintiff in O.S. No. 3392 of 2002 on the file of the X Junior Civil Judge, City Civil Court, Hyderabad. The plaintiff is a borrower and the defendant is a lender. The defendant financed the plaintiff for purchase of a vehicle from OPEL showroom of M/s. ASCO MOBILE (P) Ltd., under a loan agreement dated 7-9-2001. As per the terms of the loan agreement the plaintiff has to pay the loan amount in instalments and failure to pay any one of the instalments enables the lender to recall the entire amount due. Consequent on the failure of the plaintiff to pay certain instalments, the defendant seized the vehicle hypothecated to it by invoking Clause 14 of the loan agreement. Questioning the seizure of the vehicle the plaintiff/borrower filed O.S. No. 3392 of 2002 seeking the following relief:
(i) It is therefore prayed that the Hon'ble Court may be pleased to pass the judgment and decree for perpetual injunction be granted restraining the defendant, its agents, workers, servants and all acting through or under it from alienating or disposing of the suit vehicle to third parties;
(ii) Costs of the suit be granted;
(iii) Any other relief be granted to which plaintiff is legally entitle.
3. The defendant received the summons and filed I.A. No. 2019 of 2002 under Section 8(1) of Arbitration and Conciliation Act, 1996 read with Section 151 C.P.C. to refer the dispute in the suit to Arbitrator as per the clause in the loan agreement.
4. The plaintiff filed counter resisting the application. The learned Junior Civil Judge, on considering the material on record and on hearing the Counsel for parties, dismissed the application by an order dated 5.1.2004. The prime ground on which the learned Junior Civil Judge dismissed the application filed by the defendant is that the defendant took steps for seizure of the vehicle without invoking arbitration clause in the loan agreement and therefore it amounts to waiver of the arbitration clause. Assailing he order passed in I.A. No. 2019 of 2002, the defendant filed this civil revision petition.
5. This Court while admitting the civil revision petition passed the following order:
During the course of hearing of this petition, I have come across with the agreement by which the loan was advanced under provision 14.1(ii) in which it is staled:
'Demand that the borrower return the product to the lenders at the risk and expense of the borrower, in the same condition was delivered to it (ordinary wear and tear excepted) at such location as the lender may designate and upon failure of the borrower to do so within the period of demand, as agents and constituted attorney of the borrower enter upon premises where the product is located and take immediate possession of and remove the same without liability to the lenders or their agents or such entry or for damage to property or otherwise. Upon such return of the product or upon the lender taking possession of the product as hereinbefore stated, the loan herein granted by the lender to the borrower shall stand cancelled and provided however, the remedies available to the lender as herein given shall survive such cancellation of loan and the lender shall be entitled and authorized to exercise its right herein including in connection with the product to recover its dues under this agreement.'
Whether this condition in the agreement is legal and in accordance with public policy, would be an important question to be decided in this petition as basically the seizure power is a police power which is prima facie available only to the State.
Let a notice be issued to Advocate-General also to assist this Court as amicus curiae as of and on vehicles are being seized by financiers prima facie without any authority of law.'
In pursuance of the above order the learned Advocate-General appeared to assist the Court as amicus curiae. The learned Advocate General submits that the issue whether the clause in the loan agreement authorizing the lender to seize the vehicle opposed to public policy is no more subsists in view of the decision of the Supreme Court in Charanjit Singh Chadha v. Sudhir Mehra, : 2001CriLJ4255 . It has been held in the cited decision that:
'Hire purchase agreements are executory contracts under which the goods are let on hire and the hirer has an option to purchase in accordance with the terms of the agreement. These types of agreements were originally entered into between the dealer and the customer and the dealer used to extend credit to the customer. But as hire purchase schemes gained in popularity the dealers who were not endowed with liberal amount of working capital found it difficult to extend the scheme to many customers. Then the financiers came into picture. The finance company would by the goods from the dealer and lend them to the customer under hire purchase agreement. The dealer would deliver the goods to the customer who would then drop out of the transaction leaving the finance company to collect instalments directly from the customer. Under hire purchase agreement, the hirer is simply paying for the use of the goods and for the option to purchase them. The finance charge, representing the difference between the cash price and the hire purchase price, is not interest, but represents a sum, which the hirer has to pay for the privilege of being allowed to discharge the purchase price of goods by instalments.'
It is further held in Para 17 of the judgment as follows:
'The hire purchase agreement in law is an executory contract of sale and confers no right in rem on the hirer until the conditions for transfer of the property to him have been fulfilled. Therefore, the re-possession of goods as per the term of the agreement may not amount to any criminal offence. The agreement (Annexure P-1) specifically gave authority to the appellants to re--possess the vehicle and their agents have been given the right to enter any property or building wherein the motor vehicle was likely to be kept. Under the hire purchase agreement the appellants have continued to be the owners of the vehicle and even if the entire allegations against them are taken as true, no offence was made out against them. The learned single Judge seriously flawed in his decision and failed to exercise jurisdiction vested in him by not quashing the proceedings initiated against the appellants. We therefore, allow this appeal and set a side the impugned judgment. The complaint and any other proceedings initiated pursuant to such complaint are quashed.'
A question came up for consideration as to power of hypothecatee to take possession and sell hypothecated property without intervention of the Court in State Bank of India v. S.B. Shah Ali, : AIR1995AP134 . It has been held in the cited decision as follows:
'Where there is a mere charge in hypothecation agreement, the hypothecatee has to approach the Court and seek intervention of the Court for obtaining money decree and for bringing the hypothecated goods for sale through the Court. When there is any specific clause in the hypothecation agreement empowering the hypothecatee to take possession of the goods and sell the same, in the event of default in payment, as per the said terms the hypothecatee can proceed ahead without intervention of the Court.'
It is further held that the clause empowering the hypothecatee to take possession of hypothecated goods is not opposed to public policy.
6. It is evident from the loan agreement that the lender is empowered to seize the vehicle consequent on the default in payment of instalments by the borrower. The action of seizure of the vehicle is in terms of the agreement settled between the parties. Therefore, it cannot be said that the clause empowering the lender to seize the vehicle hypothecated to it is against the public policy.
7. The learned Counsel for petitioner/defendant submits that under Clause 28 of the loan agreement all disputes, differences and all claims between the parties are required to be referred to the Arbitrator for adjudication. He further submits that the trial Court has not correctly appreciated the material brought on record and thereby erred in observing that the petitioner/defendant waived the right of arbitration clause by seizing the vehicle hypothecated to it. He placed reliance on the decisions of the Supreme Court in P. Anand Gajapathi Raju and Ors. v. P.V.G. Raju (dead) and Ors., : [2000]2SCR684 and Kalpana Kothari (Smt) v. Sudha Yadav (Smt) and Ors., : AIR2002SC404 .
8. Per contra, the learned Counsel for respondent/plaintiff submits that the very seizure of the vehicle by the petitioner/ defendant is against the terms of the loan agreement since no notice was given to the respondent/plaintiff before seizure of the vehicle. He also submits that the decision cited by the Counsel for the petitioner relates to hypothecation agreement and therefore the ratio laid down in the referred decisions cannot be applied to the facts on hand. His further submission is that the loan agreement enabling the lender to repossess the vehicle is void. He placed reliance on the decision of Punjab and Haryana High Court in Tarun Bhargava v. State of Haryana and Anr., AIR 2003 P&H; 98. If there is no hypothecation in the loan agreement, the cited decision can be applied. But on perusal of the loan agreement, it reveals that the respondent/plaintiff (borrower) has hypothecated the vehicle, which he purchased by raising loan from the petitioner/ defendant (lender). Therefore, the cited decision has no application to the facts of the case on hand.
9. The only issue that is required to be adjudicated is whether the seizure of the vehicle by the petitioner/defendant amounts to waiver of arbitration clause in the loan agreement. The circumstances under which the vehicle can be seized by the lender are detailed in Clause 14, whereas Clause 29 of the loan agreement deals with arbitration. These two clauses are to be read independently and they are not mutually exclusive of one another. The petitioner/ defendant seized the vehicle by invoking Clause 14 of the loan agreement. The question whether the seizure is justified or not is beyond the scope of enquiry in the application filed by the petitioner/defendant under Section 8(1) of the Arbitration and conciliation Act read with Section 151 C.P.C. It is suffice to say that all disputes, differences and all claims arising out of the loan agreement are required to be adjudicated by an Arbitrator. I deem it appropriate to refer Clause 29 of the arbitration clause and it reads as follows:
'Arbitration:--All disputes, differences and/ or claim arising out of these presents or in any way touching or concerning the same or as to constructions, meaning or effect hereof or as to the right and liabilities of the parties hereunder shall be settled by arbitration to be held in accordance with the provision of the Arbitration and Conciliation Act, 1996 or any statutory amendments thereof and shall be referred to the sole arbitration of a sole arbitrator to be nominated by the Lender. In the event of death, refusal, neglect, inability or incapability of a person so appointed to act as an arbitrator, the Lender may appoint a new arbitrator. The arbitrator shall not be required to give any reasons for the award and the award of the arbitrator shall be final and biding on all parties concerned. The arbitration proceeding shall be held in Mumbai.'
It is evident from the above referred clause that all the disputes or differences are required to be adjudicated by the Arbitrator. The petitioner/defendant has filed the application, on receipt of summons and before taking any further step, seeking appointment of the Arbitrator. The learned Junior Civil Judge has thoroughly misread the terms of the loan agreement and committed error in observing that the petitioner/defendant has waived the arbitration clause by seizing the vehicle.
10. In the result, the civil revision petition is allowed, setting aside the order dated 5.1.2004 passed in I.A. No. 2019 of 2002 in O.S. No. 3392 of 2002 and consequently I.A. No. 2019 of 2002 stands allowed.