M/s. TVS Finance and Services Ltd., formerly known as M/s. Harita Finance Limited Vs. Aerupula Narahari Rao and Others - Court Judgment

SooperKanoon Citationsooperkanoon.com/1190150
CourtChennai High Court
Decided OnJun-28-2016
Case NumberO.S.A.No. 435 of 2008 & M.P.No. 1 of 2008
JudgeA. Selvam &Amp; P. Kalaiyarasan
AppellantM/s. TVS Finance and Services Ltd., formerly known as M/s. Harita Finance Limited
RespondentAerupula Narahari Rao and Others
Excerpt:
civil procedure code, 1908 - order xxxvi rule 1 letters of patent act clause 15 - guarantors liability - appellant/creditor had entered into hire purchase agreement with principal debtor defaulted in paying monthly installment - appellant invoked arbitration proceedings, wherein respondents were impleaded as guarantors of principal debtor arbitrator passed award against respondents and it was challenged by respondents as appellant had conceded that respondents are not parties to agreement and cannot be treated as guarantors learned single judge setaside the entire award hence this appeal - court held relying on decision of apex court - unless guarantors are parties to agreement entered into between creditor and debtor, they cannot be made liable appellant has conceded that respondents are not parties to concerned agreement - learned single judge has rightly found that respondents herein are not responsible for amount due from principal debtor - as learned single judge has erroneously set aside entire arbitral award and to that extent order is modified arbitral award was set aside insofar as respondents are concerned and in other aspects arbitral award was confirmed appeal partly allowed. paras: (7, 8) case relied: 1.(s.n.prasad, hitek industries (bihar) limited vs. monnet finance limited and others), 2011 (1) scc 320 comparative citation: 2016 (4) ctc 492, (prayer: this appeal is preferred under order xxxvi rule 1 of o.s.rules r/w clause 15 of the letters patent act against the order of this court dated 8.8.2008 in o.p.no.846 of 2007.) a. selvam, j. 1. this original side appeal has been directed against the order dated 8.8.2008 passed in o.p.no.846 of 2007 by the learned single judge of this court. 2. the appellant herein and m/s.anand agros limited have entered into a hire purchase agreement and since there is a default in paying monthly installment, as per agreement, the appellant has invoked arbitration proceedings, wherein the respondents 1 to 5 have also been impleaded as guarantors of the principal debtor. the arbitrator after considering the divergent contentions raised on either side has passed an award dated 26.2.2007 and the same has been challenged by the respondents 1 to 5 herein, as petitioners in o.p.no.846 of 2007 on the file of this court. 3. the learned single judge, after considering the divergent contentions raised on either side, has come to a conclusion that the petitioners are not parties to the agreement entered into between the appellant herein and m/s.anand agros limited and ultimately set aside the arbitration award dated 26.2.2007 by way of passing the impugned order and in order to set aside the same, present original side appeal has been preferred by the first respondent as appellant herein. 4. the learned counsel appearing for the respondents has not made his appearance and under such circumstances, this original side appeal has been disposed of on merits on the basis of the contentions put forth on the side of the appellant/first respondent. 5. the learned counsel appearing for the appellant/first respondent has fairly conceded that the respondents 1 to 5/petitioners are not parties to the agreement, which has come into existence between the appellant/first respondent and m/s.anand agros limited. under such circumstances, they cannot be treated as guarantors and the learned single judge, after considering the main contention put forth on the side of the respondents 1 to 5/petitioners has rightly set aside the award dated 26.2.2007, but the learned single judge has erroneously set aside the entire award and at the most, the arbitral award can be set aside only in respect of the petitioners/respondents 1 to 5. 6. the learned counsel appearing for the appellant/first respondent has drawn the attention of the court to the decision reported in 2011 (1) scc 320 (s.n.prasad, hitek industries (bihar) limited vs. monnet finance limited and others), wherein at paragraphs 8 to 10, it is observed as follows: "8. thus, there can be reference to arbitration only if there is an arbitration agreeement between the parties. the act makes it clear that an arbitrator can be appointed under the act at the instance of a party to an arbitration agreement only in respect of disputes with another party to the arbitration agreement. if there is a dispute between a party to an arbitration agreement, with other parties to the arbitration agreement as also non-parties to the arbitration agreement, reference to arbitration or appointment of arbitrator can be only with respect to the parties to the arbitration agreement and not the non-parties. 9. there is no dispute that the loan agreements among the first respondent (lender), the second respondent (borrower) and the third respondent (guarantor) contained a provision for arbitration. the said provision for arbitration is extracted below: "in the event of any dispute, question or difference arising out of or in connection with this agreement and the respective rights and obligations of the parties hereunder, the same shall be referred to the arbitration in accordance with the provisions of the arbitration act, 1940". but the appellant was not a party to the same. in fact, the appellant's letter of guarantee for rs.75 lakhs was given on 27.10.1995, prior to the dates of the two loan agreements. it is also not in dispute that the letter dated 27.10.1995 given by the appellant to the first respondent did not contain a provision for arbitration; and that except the said letter dated 27.10.1995, the appellant did not execute any document or issue any communication. 10. an arbitration agreement between the lender on the one hand and the borrower and one of the guarantors on the other, cannot be deemed or construed to be an arbitration agreement in respect of another guarantor who was not a party to the arbitration agreement. therefore, there was no arbitration agreement as defined under sections 7(4)(a) or (b) of the act, insofar as the appellant was constrained, though there was an arbitration agreement as defined under section 7(4)(a) of the act in regard to the second and third respondents. as the letter dated 27.10.1995 does not refer to any document containing an arbitration clause, there is also no arbitration agreement between the first respondent and the appellant as contemplated under section 7(5) of the act." 7. from a close reading of the decision reported supra, it is easily discernible that unless guarantors are parties to the agreement entered into in between the creditor and debtor, they cannot be made liable. 8. in the instant case, as fairly conceded on the side of the appellant/first respondent, the respondents 1 to 5/petitioners are not parties to the concerned agreement. under such circumstances, the learned single judge has rightly found that the petitioners/respondents 1 to 5 herein are not at all responsible for the amount due from the principal debtor. therefore, on the basis of the clear admission made on the side of the appellant, coupled with the decision reported in 2011 (1) scc 320, this court is of the view that there is no merit in the appeal and the same deserves to be dismissed. however, as rightly pointed out on the side of the appellant/first respondent, the learned single judge has erroneously set aside the entire arbitral award and to that extent, the order of the learned single judge is liable to be modified. in fine, this original side appeal is allowed in part. the order passed by the learned single judge in o.p.no.846 of 2007 is modified as follows: "the arbitral award dated 26.2.2007 passed in claim no.54 of 2003 is set aside, insofar as the respondents 1 to 5/petitioners are concerned. in other aspects, the arbitral award is confirmed." no costs. the connected miscellaneous petition is closed.
Judgment:

(Prayer: This Appeal is preferred under Order XXXVI Rule 1 of O.S.Rules r/w Clause 15 of the Letters Patent Act against the order of this Court dated 8.8.2008 in O.P.No.846 of 2007.)

A. Selvam, J.

1. This Original Side Appeal has been directed against the order dated 8.8.2008 passed in O.P.No.846 of 2007 by the learned Single Judge of this Court.

2. The appellant herein and M/s.Anand Agros Limited have entered into a hire purchase agreement and since there is a default in paying monthly installment, as per agreement, the appellant has invoked arbitration proceedings, wherein the respondents 1 to 5 have also been impleaded as guarantors of the principal debtor. The arbitrator after considering the divergent contentions raised on either side has passed an award dated 26.2.2007 and the same has been challenged by the respondents 1 to 5 herein, as petitioners in O.P.No.846 of 2007 on the file of this Court.

3. The learned Single Judge, after considering the divergent contentions raised on either side, has come to a conclusion that the petitioners are not parties to the agreement entered into between the appellant herein and M/s.Anand Agros Limited and ultimately set aside the arbitration award dated 26.2.2007 by way of passing the impugned order and in order to set aside the same, present Original Side Appeal has been preferred by the first respondent as appellant herein.

4. The learned counsel appearing for the respondents has not made his appearance and under such circumstances, this Original Side Appeal has been disposed of on merits on the basis of the contentions put forth on the side of the appellant/first respondent.

5. The learned counsel appearing for the appellant/first respondent has fairly conceded that the respondents 1 to 5/petitioners are not parties to the agreement, which has come into existence between the appellant/first respondent and M/s.Anand Agros Limited. Under such circumstances, they cannot be treated as guarantors and the learned Single Judge, after considering the main contention put forth on the side of the respondents 1 to 5/petitioners has rightly set aside the award dated 26.2.2007, but the learned Single Judge has erroneously set aside the entire award and at the most, the arbitral award can be set aside only in respect of the petitioners/respondents 1 to 5.

6. The learned counsel appearing for the appellant/first respondent has drawn the attention of the court to the decision reported in 2011 (1) SCC 320 (S.N.Prasad, Hitek Industries (Bihar) Limited vs. Monnet Finance Limited and others), wherein at paragraphs 8 to 10, it is observed as follows:

"8. Thus, there can be reference to arbitration only if there is an arbitration agreeement between the parties. The Act makes it clear that an arbitrator can be appointed under the Act at the instance of a party to an arbitration agreement only in respect of disputes with another party to the arbitration agreement. If there is a dispute between a party to an arbitration agreement, with other parties to the arbitration agreement as also non-parties to the arbitration agreement, reference to arbitration or appointment of arbitrator can be only with respect to the parties to the arbitration agreement and not the non-parties.

9. There is no dispute that the loan agreements among the first respondent (lender), the second respondent (borrower) and the third respondent (guarantor) contained a provision for arbitration. The said provision for arbitration is extracted below:

"In the event of any dispute, question or difference arising out of or in connection with this agreement and the respective rights and obligations of the parties hereunder, the same shall be referred to the arbitration in accordance with the provisions of the Arbitration Act, 1940".

But the appellant was not a party to the same. In fact, the appellant's letter of guarantee for Rs.75 Lakhs was given on 27.10.1995, prior to the dates of the two loan agreements. It is also not in dispute that the letter dated 27.10.1995 given by the appellant to the first respondent did not contain a provision for arbitration; and that except the said letter dated 27.10.1995, the appellant did not execute any document or issue any communication.

10. An arbitration agreement between the lender on the one hand and the borrower and one of the guarantors on the other, cannot be deemed or construed to be an arbitration agreement in respect of another guarantor who was not a party to the arbitration agreement. Therefore, there was no arbitration agreement as defined under Sections 7(4)(a) or (b) of the Act, insofar as the appellant was constrained, though there was an arbitration agreement as defined under Section 7(4)(a) of the Act in regard to the second and third respondents. As the letter dated 27.10.1995 does not refer to any document containing an arbitration clause, there is also no arbitration agreement between the first respondent and the appellant as contemplated under Section 7(5) of the Act."

7. From a close reading of the decision reported supra, it is easily discernible that unless guarantors are parties to the agreement entered into in between the creditor and debtor, they cannot be made liable.

8. In the instant case, as fairly conceded on the side of the appellant/first respondent, the respondents 1 to 5/petitioners are not parties to the concerned agreement. Under such circumstances, the learned Single Judge has rightly found that the petitioners/respondents 1 to 5 herein are not at all responsible for the amount due from the principal debtor. Therefore, on the basis of the clear admission made on the side of the appellant, coupled with the decision reported in 2011 (1) SCC 320, this Court is of the view that there is no merit in the appeal and the same deserves to be dismissed. However, as rightly pointed out on the side of the appellant/first respondent, the learned Single Judge has erroneously set aside the entire arbitral award and to that extent, the order of the learned Single Judge is liable to be modified.

In fine, this Original Side Appeal is allowed in part. The order passed by the learned Single Judge in O.P.No.846 of 2007 is modified as follows:

"The arbitral award dated 26.2.2007 passed in Claim No.54 of 2003 is set aside, insofar as the respondents 1 to 5/petitioners are concerned. In other aspects, the Arbitral Award is confirmed."

No costs. The connected Miscellaneous Petition is closed.