CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY LTD vs SUKETU RAMESH JHAVERI on 2 August 2022

1. The appeal is filed u/s 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the SARFAESI Act for short) challenging the impugned interim order in I.A. No. 445 of 2018 of the Ld. Presiding Officer, D.R.T.-II, Mumbai in S.A. No. 177 of 2018 dated 21.03.2018. The aforesaid application before the D.R.T. was filed by the Applicants therein to restrain the Respondent therein from taking physical possession of the secured assets under the provisions of the SARFAESI Act. The Ld. P.O. vide the impugned order directed that the status quo be maintained till continuance of a status-quo that was granted by the Bombay High Court vide order dated 12.10.2017 in Commercial Arbitration Petition No. 17 of 2017 with Commercial Arbitration Petition No. 55 of 2017 involving the same parties.

2. Aggrieved by this order, the Respondent in aforesaid S.A. viz. M/s. Cholamandalm Investment and Finance Co. Ltd. are in Appeal.

3. The facts as required for the purpose of disposing of this Appeal and the Misc. Application No. 354/2018 for a stay of the impugned order are thus:

The Appellant had sanctioned a Credit Loan Facility to the tune of Rs.4.70 Crores to the Respondents and in consideration of the said Credit Facilities the Respondents executed various loan security documents and agreements on 30.07.2012 and 24.05.2014. Security interest was created over Flat No. 11 on the first floor of Shyam Niwas Compound, Ramesh Niwas CHSL, 51/C, Bhulabhai Desai Road, Malabar Hill, Mumbai, by way of an equitable mortgage of deposit of title deeds. The borrowers defaulted payment and the account was classified as Non Performing Assets (N.P.A. for short). A demand notice was issued u/s 13 (2) of the SARFAESI Act on 30.09.2016 demand payment of Rs.5,29,59,743.21 as on 20.09.2016 with further interest at the contractual rate. The Respondent sent a reply raising certain objections u/s 13 (3A) of the SARFAESI Act to which the Appellant sent a reply. Thereafter, the appellant resorted to proceedings u/s 14 of the SRAFAESI Act.

4. The Respondents thereafter filed the aforesaid S.A. No. 177 of 2018 before the D.R.T.-II, Mumbai with a request to restrain the Appellant from proceeding with the Sarfaesi measures. It is in this context that a status-quo order was made by the Ld. P.O., D.R.T.- II, Mumbai.

5. The main objection raised in the S.A. is that the Appellant had already initiated steps under the Arbitration & Conciliation Act, 1996 and, therefore, cannot initiate the measures under provisions of the SARFAESI Act. The observation of the Ld. P.O. is that status-quo with regard to the Sarfaesi measures has to be maintained in view of the granting of status-quo by the Hon’ble High Court of Bombay in Commercial Arbitration Petition No. 17 of 2017 connected with Commercial Arbitration Petition No. 55 of 2017 filed u/s 34 of the Arbitration & Conciliation Act, 1996.

6. The submission of Mr. Sanjay Anabhawane, the learned counsel appearing for the Appellant is that simultaneous proceedings under the Arbitration Act and the SARFEASI Act can be maintained in view of the precedents of the Hon’ble Apex Court and hence seeks interference in the Appeal by setting aside the impugned order.

7. On going through the impugned order it is seen that the learned P.O. had granted an order of status-quo solely based on the status-quo order given by the Hon’ble High Court of Bombay in the above-mentioned Commercial Arbitration Petitions. The learned counsel for the Appellant has produced an order dated 06.12.2017 in the aforesaid Commercial Arbitration Petitions considered u/s 34 of the Arbitration & Conciliation Act, 1996 disposing of the Petitions quashing and setting aside the impugned awards by in the Arbitration Proceedings in breach of Section 34 (2)

(iii) read with Section 24 (2) and (3) of the Arbitration & Conciliation Act, 1996 in so far as no proper notice of the hearing was given to the petitioner in all the arbitration proceedings.

8. There is no dispute that arbitration proceedings as also Sarfaesi measures can proceed simultaneously in view of the judgments of the Hon’ble Supreme Court in M.D. Frozen Foods Export Pvt. Ltd. & Ors. Vs. Hero Fincorp Ltd. (2017) 16 SCC 741 relying upon another decision of the Hon’ble Apex Court in Indiabulls Housing Finance Ltd. Vs. Deccan Chronicle Holdings Ltd. (2018) 14 SCC 783, held thus: “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 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 vs. 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 13 HDFC Bank Limited v. Satpal Singh Bakshi - 2013 (134) DRJ 566 (FB) 14 2013 (134) DRJ 566 (FB) 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.”

9. In the instant case, the Appellant is a Non-Banking financial institution that can proceed under the SARFAESI Act. However, it is not a financial institution that could proceed with adjudication before the D.R.T. under the provisions of the R.D.B. Act. Arbitration is an adjudicating proceeding while SARFAESI Act is a proceeding available to the secured creditors to proceed against the secured assets in an expeditious manner without resorting to remedy before a Civil Court, Arbitral Tribunal, or a Debt Recovery Tribunal constituted under the R.D.B. Act.

10. Under the circumstances, I find that the Ld. P.O. was not justified in granting a status-quo of the Sarfaesi measures solely based on the order of the status-quo granted by the High Court of Bombay in the Commercial Arbitration Petitions filed u/s 34 of the Arbitration & Conciliation Act, 1996 challenging the procedure under the said Act.

11. I understand that the proceedings before the D.R.T.-II, Mumbai, in S.A. No. 177 of 2018 is ripe for being heard. Hence, the impugned order is set aside, and the Ld. P.O., D.R.T.-II, Mumbai, is directed to dispose of the aforesaid S.A. No. 177 of 2018 on merits as expeditiously as possible keeping in view the decisions rendered by the Hon’ble Apex Court on the subject.

12. In view of the allowing of M.A. No. 354 of 2018 for stay, the Misc. Appeal No. 73 of 2022 itself is allowed as above. No order as to costs.

13. All Miscellaneous Applications, if any, are dismissed as infructuous. Sd/- Chairperson dpj-1