Full Text
HIGH COURT OF DELHI
Date of Decision: 9th November, 2020
NEW MORNING STAR TRAVELS ..... Petitioner
Through: Mr. Sushant Mahajan, Advocate.
Through: Mr. Birender Singh, AR (M-8291941009).
JUDGMENT
1. This hearing has been done by video conferencing.
2. The present petition under Article 227 has been filed under extra-ordinary circumstances wherein the ld. District Judge, (Commercial Court), East District, Karkardooma Courts has disposed of 16 petitions filed by the Respondent under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter ‘the Act’), vide the impugned orders of various dates i.e., 16th October, 2020, 19th October, 2020, 20th October, 2020, 21st October, 2020, 22nd October, 2020 and 23rd October, 2020. The orders are identical in almost all respects.
3. The said petitions have been disposed of on the very first day of hearing, without issuing notice in the petitions to the Petitioner herein. Further, coercive orders have also been passed, permitting the Respondent to take possession of the vehicles of the Petitioner.
4. The Petitioner is a company, which had purchased 16 vehicles under loan-cum-hypothecation agreements entered into on 28th November, 2018 with the Respondents. The said agreement contained an arbitration clause. There was a default by the Petitioners in payment of certain instalments of 2020:DHC:3221 the loan. Thereafter, the Petitioner came to know that 16 petitions under Section 9 were filed by the Respondent, in which the impugned orders have been passed. All the 16 orders have been placed on record.
5. Mr. Mahajan, ld. counsel appearing for the Petitioner submits that the total dues are only to the tune of Rs. 87 lakhs and the taking of possession of all the vehicles in the manner as has been done in this case, would bring the business of the Petitioner to a complete stand still. His grievance is that the Section 9 petitions have been disposed of without notice and coercive orders of possession have been passed, without even hearing the Petitioner.
6. Advance copy of this petition was served upon the Respondent. However, none appeared for the Respondent when the matter was first called. The matter was passed over, directing ld. counsel for the Petitioner to contact ld. counsel for the Respondent. After the Passover – Mr. Birender Singh, Authorised Representative of the Respondent joined the proceedings. Mr. Singh submits that he would have to mark the matter to a panel lawyer, as he is not aware of the facts. He submits that the advance copy of the petition may not have been intimated to him as the office is not functioning.
7. The Petitioner runs a bus service. It had availed of the loan facility for purchasing 16 vehicles. The same was repayable in 54 months. There were some defaults by the Petitioner, which led to filing of the Section 9 petitions.
8. The following are the details of the 16 petitions which were filed:
6 Volkswagen Finance Private Limited v. New Morning Star Travels’ - OMP (I) Comm. NO. 2453/2020Volkswagen Finance Private Limited v. New Morning Star Travels’ - OMP (I) Comm. NO. 2456/2020
10 Volkswagen Finance Private 2476/2020 21.10.2020 11 Volkswagen Finance Private Limited v. New Morning Star Travels’ - OMP (I) Comm. No.2487/2020
9. A perusal of the impugned orders shows that the said orders have been passed in almost identical terms. As per the said orders, the petitions under Section 9 of the Act were accompanied with an application for interim ex-parte relief till the arbitration proceedings are concluded. The orders record that the loan-cum-hypothecation agreement was executed. Loan recall notices were issued by the Respondent and the Petitioner was called upon to pay the total outstanding of Rs. 71,39,808/-. On the ground that the Petitioner did not pay the said amount and expressing an apprehension that the vehicles may be disposed of, the Trial Court appointed a Receiver to take possession of the vehicles in terms of an order of this court dated 23rd December, 2015 in Kotak Mahindra Prime Ltd vs. Kamal Chauhan & Anr., [O.M.P (I No 540/2015 & I.A. No. 25026/2015]. The Trial Court thereafter directs the Respondent to initiate arbitration proceedings within 90 days, failing which the interim order would be automatically vacated. The main petitions under Section 9 of the Act were disposed off.
10. Thus, while dealing with the application for ad-interim ex-parte relief, the main petition under Section 9 of the Act was disposed off, without calling upon the Petitioner to even file a reply. No hearing was afforded to the Petitioner.
11. Section 9 petitions cannot be disposed of ex-parte, without giving notice to the respondent therein, especially when coercive orders are being passed. The power to pass ad-interim orders under Section 9 of the Act are not in doubt. However, disposal of the petitions, without issuing notice and hearing the respondent as well as directing coercive orders of possession would be violative of the principles of natural justice.
12. The standards to be adopted for grant of interim measures under Section 9 of the Act are akin to the standards that are applied for grant of interim injunction under Order XXXIX Rules 1 and 2 CPC and for appointment of a Receiver under Order XL CPC. The disposal of Section 9 petitions without even hearing the Respondent is contrary to all settled tenets. Moreover, the grant of ex-parte injunctions, ex-parte interim measures or appointment of Receivers at the ex-parte stage would be governed by principles akin to Order XL CPC wherein there has to be a grave and imminent apprehension that the property would not be able to be retrieved if notice is issued. The appointment of Receivers at the ex-parte stage in matters such as vehicle loans ought to satisfy the test of imminent threat. The Court also ought to come to a conclusion that there was a deliberate intention not to repay the loan. Thus, out of the total instalments due and payable, the Court has to see the conduct of the borrower including the irregularity of payment, the total amounts paid till date, any other extenuating or other factors such as the present pandemic which could justify non-payment etc. The appointment of a Receiver to take possession at the ad-interim stage could lead to the buses which are being used for the everyday business of the Petitioner being seized by the finance company, thereby causing the Petitioner’s business activities to come to a grinding halt. The standard that would be required to be satisfied for such an extreme measure should be high. Moreover, disposal of a Section 9 petition on the first date itself would be contrary to the basic principles that govern the adjudication of such petitions.
13. A Full Bench of the Telangana and Andhra Pradesh High Court in East India Udyog Limited v. Maytas Infra Ltd. & Ors. [AIR 2015 AP 118], has answered the question as to whether a Court can dispose of a Section 9 petition even before initiation of arbitral proceedings under Section 21 of the Act in view of the judgments of the Supreme Court in Sundaram Finance Ltd., V. NEPC India Ltd. [(1999) 2 SCC 479] and Firm Ashok Traders and another V. Gurumukh Das Saluja and Ors., [(2004) 3 SCC 155], as following: "the Court as defined under Section 2(e) of the Act, is undoubtedly entitled to dispose of the application filed under Section 9 of the Act even before initiation of the arbitral proceedings under Section 21 of the Act. The Court, however, cannot dispose of such application ex parte without giving notice to the respondents, but Court can pass ex parte ad interim order pending the application filed under Section 9 of the Act."
14. Further a ld. Division Bench of the Madras High Court in the judgment of Cholamandalam DBS Finance Ltd. v. Sudhees Kumar [2010 (1) CTC 481] has expressly laid down guidelines that ought to be followed while dealing with applications under Section 9, with respect to seizure of vehicles. The relevant extract is as under: -
15. In Kotak Mahindra (supra) as well, the respondents therein were issued notice on 21st September, 2015 and thereafter on 17th December,
2015. It was only after the respondents did not appear despite service, that the Court proceeded ex-parte and directed appointment of receiver. Thus, the said judgment could not have formed the basis for the Trial Court to pass coercive orders on the first date of hearing and also dispose of the petitions ex-parte.
16. There cannot be any doubt that the Trial Court has the power to pass orders under Section 9. However, one has to bear in mind the principles for grant of interlocutory injunctions as also for appointment of receivers, that too at the ex-parte stage. The vehicles involved herein are luxury buses. Directing 16 buses to be taken possession of by the Receiver is a direction that ought to be passed under extraordinary circumstances, when the default by the company availing loan is not capable of being made good. In these cases, since no notice was issued, the Trial Court could not have presumed that the Petitioner would not be willing to make the payments. Defaults in few instalments cannot lead to such extreme directions especially during the pandemic situation. The Trial Court ought to have issued notice to the Petitioner, afforded a hearing and then passed appropriate orders in accordance with law.
17. Under these facts and circumstances, this Court is inclined to set aside the impugned orders and remand the matter back to the Commercial Court. The Petitioner undertakes to pay to the Respondent a sum of Rs.25 lakhs within one week. The payment to be made shall be made through regular channel. Mr. Birender Singh submits that he would have no objection if the matter is remanded back to Karkardooma Courts.
18. Accordingly, the impugned orders are set aside. All the matters shall be taken up for hearing before the ld. District Judge (Commercial Court), East District on 7th December, 2020. The Petitioner shall ensure that the payment of Rs. 25 lakhs is made and replies to the petitions are also filed before the next date.
19. The matters shall be heard on merits, after completion of pleadings. If any other instalments are due under the loan agreement, the ld. District Judge shall pass orders, in accordance with law after hearing the petitioner. Broadly speaking, the guidelines set out in Cholamandalam (supra) may be followed in case of Section 9 petitions relating to vehicle loans.
20. With these observations, the present petition, along with all pending applications, is disposed of. Copy of this order be communicated to the ld. District Judge, (Commercial Court), East District, Karkardooma Courts. The present order be also circulated by the worthy Registrar Generals to all the District Judges for onward circulation to the Judges presiding over Commercial Courts.
PRATHIBA M. SINGH JUDGE NOVEMBER 9, 2020 Rahul / A