Katta Srinivasu v. M/s. IKF Finance Limited

Judgment

(per Hon‟ble Sri Justice Ravi Nath Tilhari) Heard Sri P. V. A. Padmanabham, learned counsel for the petitioners and Sri V. V. L. N. Purnesh, learned counsel for the respondents.

2. The aforesaid civil revision petitions have been filed under Article 227 of the Constitution of India. In CRP No.2345 of 2022 the challenge is to the Order dated 30.09.2022 passed in Execution Petition No.676 of 2022 in AOP.No.6 of 2020 in the application of the decree holder for attachment of the bank account of the petitioner and in the other CRP No.419 of 2026 the grievance raised for is the non-disposal of the petitioners‟ application for stay in ARB OP No.02 of 2023 under Section 34 of the Arbitration and Conciliation Act, 1996 (in short „Act 1996‟), pending in the same Court of VIII Additional District Judge, Vijayawada. I. Facts:

3. Briefly, the facts are, that there exists an arbitration award in favour of M/s.INK Finance Limited, Vijayawada, the Finance Company, dated

20.01.2021 in AOP No.6 of 2020 passed by the sole arbitrator. The Award was against both the petitioners in CRP.No.419 of 2026 and the only petitioner in CRP.No.2345 of 2022. The petitioner in CRP.No.2345 of 2022 is the 1st petitioner in CRP No.419 of 2026. The Award is for recovery of amount under 5 RNT, J & BM, J CRP Nos.2345/2022 & 419/2026 loan basing on an agreement No.LN148437 in favour of the 1st respondent finance company. The Sole Arbitrator, by name Sri B. Chalapathi Suri, passed an award dated 20.01.2021 which is said to be an ex parte award without service of notice on the petitioners. The 1st petitioner is the barrower and the other petitioner is the guarantor. Being aggrieved, the petitioners filed AOP.No.2 of 2023 under Section 34 of the Act 1996 in the Court of the Principal District Judge, Krishna at Mchilipatnam for setting aside the award in Award No.6 of 2020, dated 20.01.2021. The same is pending before the VIII Additional District Judge, Vijayawada.

4. The 1st respondent filed E.P.No.676 of 2022 to execute the Award. In the said EP the Order dated 30.09.2022 was passed to attach the amount lying in the bank account of the 1st petitioner/Judgment Debtor in UCO Bank Athili Branch, West Godavari District directing the Garnishee bank to withhold the said amount and prohibit any transactions until further orders of the Court. This Order is under challenge in CRP No.2345 of 2022.

5. The 1st respondent in the counter filed in CRP No.419 of 2026 has inter alia stated that when the dispute arose due to non-payment of the outstanding loan in spite of the demand notices, the 1st respondent company referred the 2nd respondent in CRP No.419 of 2026 the retired Junior Civil Judge as sole arbitrator to settle the dispute between the petitioners and the 1st respondent. The petitioner did not give reply to the notice and remained silent throughout the arbitration proceedings in AOP.No.6 of 2020 and even in the E.P.No.676 of 2022 filed by the 1st respondent the petitioners never raised their 6 RNT, J & BM, J CRP Nos.2345/2022 & 419/2026 objections regarding appointment of sole arbitrator which waives the right of the petitioner to object the appointment of sole arbitrator under Section 4 of the Act 1996. The 1st respondent in the counter affidavit has further contended that the sole arbitrator is an individual entity having no direct or indirect relations with the 1st respondent company, and that the arbitrator was not appointed by any person as per the categories prescribed in Seventh Schedule and not barred under the provisions of Section 12 (5) of the Act.

6. The 1st respondent has filed counter in CRP.No.2345 of 2022 as well, and inter alia, submitted that the arbitration proceedings and SARFAESI Act proceedings can go together. The two Acts are cumulative remedies to the secured creditor. The SARFAESI proceedings are in the nature of enforcement proceedings. The arbitration proceedings would be in the form of adjudicator process. So, both can go on simulataneously and one is not the bar for the other remedy. II. Submissions: i) For petitioners:

7. Sri P. V. A. Padmanabham, learned counsel for the petitioners, submitted that the award dated 20.01.2021 is by the sole arbitrator. The said Arbitrator was appointed unilaterally by the Finance Company-1st respondent. He submitted that the 1st respondent and its authority which appointed the sole arbitrator was ineligible to act as an Arbitrator and so also to nominate an Arbitrator unilaterally in the dispute. He submitted that in view of Section 12 read with Schedule Seven, there was ineligibility to act as an Arbitrator and also 7 RNT, J & BM, J CRP Nos.2345/2022 & 419/2026 to unilaterally nominate the Arbitrator by the said Finance Company through its authority. The Award, as such, is without jurisdiction. The execution proceedings for the execution of such an invalid award, which is non est having been passed an authority, statutorily barred, as also the Order of attachment are without jurisdiction and deserve to be set aside. Learned counsel for the petitioner placed reliance in the following judgments:

1. Perkins Eastman Architects DPC v. HSCC (India) Ltd.1

2. Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV)2

3. Bhadra International (India) Pvt. Ltd. v. Airports Authority of India3

4. L & T Finance Ltd. v. Sangeeta Bhansali (Borrower)4

8. We place on record that the learned counsel for the petitioner submitted that though a plea has been taken in the grounds of revision that the Finance Company having initiated the steps for realization / recovery of the loan amount under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, could not resort to the arbitration proceedings, but, he submitted further that, in view of the judgment of the Hon‟ble Apex Court on the said aspect settling the law in M. D. Frozen Foods Exports Pvt. Ltd. v. Hero Fincorp Ltd.5 that