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Civil Appeal No. 5440 of 2002. Case: Booz Allen and Hamilton Inc. Vs SBI Home Finance Ltd. and Ors.. Supreme Court (India)

Judgment Cited in 185 Precedent Map Related
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Case NumberCivil Appeal No. 5440 of 2002
CounselFor Appellant: Indu Malhotra, Sr. Adv., Shahsi M. Kapila, Nupur Kanungo and Vikas Mehta, Advs. and For Respondents: Jaideep Gupta, Sr. Adv., Manu Nair, Kirat S. Nagra and Arun Mohan, Advs. for Suresh A. Shroff and Co.
JudgesR. V. Raveendran and J. M. Panchal, JJ.
IssueArbitration and Conciliation Act, 1996 - Sections 8, 8(1), 11, 34, 34(2) and 48(2); Sick Industrial Companies (Special Provisions) Act, 1985; Specific Relief Act, 1963; Transfer of Property Act, 1882 - Sections 85 to 90, 97 and 99; Code of Civil Procedure (CPC) - Sections 92 to 94 and 96 - Order 8, Rule 1 - Order 34, Rules 1, 4(1) and 4(2); ...
CitationAIR 2011 SC 2507, 2011 (2) ArbLR 155 (SC), 2011 4 AWC 3656 SC, JT 2011 (5) SC 198, 2011 3 LW 149, 2011 (5) MahLJ 8, 2011 (5) SCALE 147, (2011) 5 SCC 532, 2011 (2) UJ 1472 (SC)
Judgement DateApril 15, 2011
CourtSupreme Court (India)

Judgment:

R.V. Raveendran, J.

  1. The scope of Section 8 of the Arbitration and Conciliation Act, 1996 (Act, for short) arises for consideration in this appeal by special leave.

  2. Capstone Investment Co. Pvt. Ltd. (second Respondent herein, for short "Capstone") and Real Value Appliances Pvt. Ltd. (Respondent No. 3 herein, for short "RV Appliances") are the owners of flat No. 9A and 9B respectively situated at "Brighton", Napien Sea Road, Mumbai. Capstone and RV Appliances had borrowed loans from SBI Home Finance Ltd., (the first Respondent herein, for short "SBI") under two loan agreements dated 3.12.1994 by securing the said two flats in favor of SBI.

  3. Under two leave and licence agreements dated 5.4.1996, Capstone and RV Appliances permitted the Appellant to use their respective flats, for the term 1.9.1996 to 31.8.1999. Each licence agreement was signed, in addition to the licensor and licensee, by the other flat owner (that is RV Appliances in respect of agreement relating to 9A and Capstone in respect of agreement relating to 9B) and SBI as confirming parties 1 and 2.

  4. On the same day (5.4.1996) a tripartite deposit agreement was entered among RV Appliances and Capstone as the first party, Appellant as the second party and SBI as the third party. Under the said agreement, the Appellant paid a refundable security deposit of Rs. 6.5 crores to Capstone and RV Appliances (at the rate of Rs. 3.25 crores for each flat). Clause (E) of the said agreement confirmed that the Appellant made the said deposit and Capstone and RV Appliances received the said deposit on the basis of the terms and conditions recorded in the two leave and licence agreements and the deposit agreement; and that the three agreements together formed a single integral transaction, inseparable, co-extensive and co-terminus in character. Out of the said deposit of Rs. 6.5 crores, a sum of Rs. 5.5 crores was directly paid to SBI on the instructions of Capstone and RV Appliances towards repayment of the loan taken by Capstone and Real Value and the balance of Rs. 1 crore accounted in the manner indicated therein. As a consequence, the loan due by Capstone to SBI in regard to flat No. 9A was cleared, but the loan taken by RV Appliances remained due and outstanding. Capstone however became a guarantor for repayment of the amount due by RV Appliances and flat No. 9A was secured in favor of SBI and a charge was created in the shares relating to flat No. 9A belonging to Capstone in favor of SBI, as security for repayment of the loan by R v. Appliances. We extract below the relevant portion of para 5A of the agreement:

    However, notwithstanding the repayment of the dues of Capstone Investment Co. Pvt. Ltd., the share Nos. 4001 to 4250 of the Society and Flat No. 9A shall continue to be available to the Party of the Third Part as security of the remaining dues of Real Value Appliances Ltd., and in this connection it is agreed that upon liquidating the dues of Capstone Investment Co. Pvt. Ltd., and in order to make available the said shares Nos. 4001 to 4250 and Flat No. 9A as security, Capstone Investment Co. Pvt. Ltd. shall become a Guarantor for repayment of dues of Real Value Appliances Pvt. Ltd. The Parties of the Third Part are confirming that it has no objection to the Party of the Second Part, its employee or officer occupying the Flats and that as long as the balance of the principal amount and interest due thereon is paid by the Parties of the First Part (or as per arrangement hereafter recorded) by the Party of the Second Part to Party of the Third Part, the Parties of the Third Part shall not enforce the mortgage and will permit the Party of the Second Part, its employee or officer to occupy the said Flats.

    Clause (3) of the Deposit agreement gave an option to the Appellant who opted to continue the licence in respect of the two flats for a further period of two years beyond 31.8.1999, by paying an additional deposit of Rs. 2 crores (at the rate of Rs. 1 crore for each flat). Clause (11) enabled the Appellant to continue to use and occupy the flats so long as the amounts paid by it as security deposit remained unpaid.

    Clause (8) gave the option to the Appellant to pay the amount due to the SBI on behalf of the borrowers to safeguard its interest. Relevant portion of para 8 is extracted below:

    If any default is made by the Parties of the First Part in paying any sum(s) due from time to time by them to the Parties of the Third Part under the loan facility, the Party of the Second Part shall, to safeguard its interest in retaining the right to use and occupy the said Flats, have an option to pay the Parties of the Third Part the sum(s) so becoming due and remaining unpaid by the Parties of the First Part, on their behalf.

    Clauses (9) and (10) provide that at the end of the licence period, Capstone and R v. Appliances shall jointly and severally be liable to refund the deposit amount along with interest thereon from the date of expiry of the licence to date of actual payment

    Clause (16) of the deposit agreement provided for arbitration and is extracted below:

    In case of any dispute with respect to creation and enforcement of charge over the said shares and the said Flats and realization of sales proceeds there from, application of sales proceeds towards discharge of liability of the Parties of the First Part to the parties of the Second Part and exercise of the right of the Party of the Second Part to continue to occupy the said Flats until entire dues as recorded in Clause 9 and 10 hereinabove are realized by the party of the Second Part, shall be referred to an Arbitrator who shall be retired Judge of Mumbai High Court and if no such Judge is ready and willing to enter upon the reference, any Senior Counsel practicing in Mumbai High Court shall be appointed as the Sole Arbitrator. The Arbitrator will be required to cite reasons for giving the award. The arbitration proceedings shall be governed by the Arbitration and Conciliation Ordinance 1996 or the enactment, re-enactment or amendment thereof. The arbitration proceedings shall be held at Mumbai.

  5. In or about July 1997 a reference was made by RV Appliances to the Board of Industrial and Financial Reconstruction (BIFR for short) under the Sick Industrial Companies (Special Provisions) Act, 1985 and in pursuance of it, flat 9B was taken over by the official liquidator.

  6. By letter dated 4.8.1999, Appellant informed Capstone and RV Appliances that it was not interested in exercising the option to renew the licences on expiry of the leave and licence agreements on 31.8.1999 and called upon the licensors to refund the security deposit of Rs. 6.5 crores, assuring that it would vacate and deliver up the licensed flats on receipt of the deposit amount. The Appellant informed SBI and BIFR about it by endorsing copies of the said letters to them. As there was no confirmation from Capstone and RV Appliances that they would refund the sum of Rs. 6.5 crores, the Appellant wrote a further letter dated 26.8.1999 stating that it would continue to occupy the flats if the security deposit was not refunded.

  7. As the loan amount due by RV Appliances was not repaid, SBI filed a mortgage suit (Suit No. 6397/1999) in the High Court of Bombay on 28.10.1999 against Capstone (first Defendant), Appellant (second Defendant), and RV Appliances (Defendant No. 3) in regard to the mortgaged property (flat No. 9A) for the following reliefs:

    (a) for a declaration that the 1st Defendant as mortgagor was due in a sum of Rs. 8,46,10,731/- with further interest on the principal sum at the rate of Rs. 16.5% per annum and additional interest for delayed payment at the rate of 2% per month from 1st September, 1999 till payment or realization;

    (b) for a declaration that the amount and interest mentioned in prayer (a) above is secured in favor of the Plaintiffs by a valid and subsisting mortgage of flat No. 9A and three garages (suit premises);

    (c) for a direction to the first Defendant to pay to the Plaintiff the amount and interest in prayer (a) by such date as may be fixed by the Court for redemption of the mortgage and in the event of the first Defendant failing to make payment by that date, the suit premises be sold by and under the orders and directions of the Court in enforcement and realization of the mortgage thereon and the net realization thereof be paid over to the Plaintiff in or towards satisfaction of its claim herein;

    (d) for a personal decree against the first Defendant to the extent of any deficiency in sale realization;

    (e) that the second Defendant be ordered to vacate the suit premises and hand over possession thereof to the Plaintiff to enable the Plaintiff effectively to enforce and realize its security thereon.

  8. On a notice of motion taken out by SBI seeking interim relief, the High Court issued the following order on 25.11.1999:

    The Defendant No. 2 shall continue to occupy Flat No. 9A and garages Nos. 45 to 47 situate at Brighton, 68D, Napean Sea Road, Mumbai but shall not create any third party right or interest of any nature whatsoever in the said flat nor shall hand over possession of the said flat to Defendant No. 1 or 3 till further order.

    Mr. Dharmadhikari, learned Counsel for first Defendant makes a statement that till further orders, the first Defendant shall not create any third party interest in the said flat No. 9A and garages Nos. 45 to 47 nor shall alienate, dispose of or transfer the said property till further orders. Statement of Mr. Dharmadhikari is accepted.

    On 15.12.1999 the Appellant filed a detailed reply to the said notice of motion. It inter alia contended that SBI had a contractual obligation towards the Appellant as it had agreed for the continuance of Appellants' occupation till refund of the deposit. Capstone also contested the application, denying the existence of any mortgage or charge over flat No. 9A.

  9. ...

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