Case Note & Summary
The petitioner, Harvestdeal Securities Ltd., challenged an order of the Debt Recovery Appellate Tribunal (DRAT) dated 19 February 2015, which set aside an earlier order of the Debt Recovery Tribunal (DRT) dated 9 September 2009. The respondent, Punjab National Bank (PNB), had filed Original Application No. 100 of 2005 under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act) seeking recovery of Rs.94,36,041/- from the petitioner. The petitioner filed a written statement raising several defences, including that the claim was barred by limitation and that the dispute was subject to an arbitration clause in the contract note, which ousted the jurisdiction of the DRT. The DRT, by a cryptic order dated 9 September 2009, entertained the preliminary objection and held that the parties should be referred to arbitration, granting leave to PNB to withdraw the application and submit to arbitration. PNB appealed to the DRAT, which allowed the appeal, set aside the DRT's order, and remitted the matter to the DRT for determining the petitioner's liability. The DRAT also noted that the claim was for a substantial amount and that the DRT's order was perverse. The petitioner then filed a writ petition under Articles 226 and 227 of the Constitution before the Bombay High Court. The High Court, after hearing both sides, dismissed the petition, holding that the DRT had no jurisdiction to refer the matter to arbitration as the RDDB Act is a special statute that overrides arbitration agreements. The court found no error in the DRAT's order and upheld it, directing the DRT to proceed with the original application on merits.
Headnote
A) Banking Law - Jurisdiction of DRT - Arbitration Clause - Section 19 of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - The issue was whether the DRT could refer parties to arbitration in a recovery suit filed by a bank under the RDDB Act. The court held that the DRT's order referring the matter to arbitration was without jurisdiction and perverse, as the RDDB Act is a special statute that overrides arbitration agreements. The DRAT correctly set aside the DRT order and remitted the matter for determination on merits. (Paras 1-5)
B) Arbitration and Conciliation Act, 1996 - Section 8 - Applicability to DRT Proceedings - The court considered whether Section 8 of the Arbitration Act, which mandates reference to arbitration if there is an arbitration agreement, applies to proceedings before the DRT. The court held that the DRT is a tribunal established under a special statute, and the RDDB Act does not provide for arbitration; thus, the DRT cannot refer parties to arbitration. (Paras 4-5)
Issue of Consideration
Whether the Debt Recovery Tribunal (DRT) has jurisdiction to entertain a recovery application under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, despite the existence of an arbitration clause in the contract between the parties.
Final Decision
The High Court dismissed the writ petition, upholding the DRAT order dated 19 February 2015. The court held that the DRT had no jurisdiction to refer the matter to arbitration and that the DRAT correctly set aside the DRT order and remitted the matter for determination on merits.
Law Points
- Arbitration clause does not oust jurisdiction of Debt Recovery Tribunal
- Section 19 of RDDB Act prevails over arbitration agreement
- DRAT can set aside DRT order if it is perverse or without jurisdiction
Case Details
2016 LawText (BOM) (03) 31
Writ Petition No. 346 of 2016
D. H. Waghela, C. J., M. S. Sonak, J.
Mr. Chirag Mody with Mr. Jayesh Mestry i/b. RMG Law Associates for petitioner; Ms Jinal Gogri with Mr. Vikrant Makhare with Ms Rutuja Patil i/b. Negandhi, Shah & Himayatullah for respondent
Harvestdeal Securities Ltd.
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Nature of Litigation
Writ petition under Articles 226 and 227 of the Constitution challenging an order of the Debt Recovery Appellate Tribunal (DRAT) which set aside an order of the Debt Recovery Tribunal (DRT) referring parties to arbitration.
Remedy Sought
The petitioner sought to quash the DRAT order dated 19 February 2015 and restore the DRT order dated 9 September 2009.
Filing Reason
The petitioner challenged the DRAT order on the ground that the DRT had correctly referred the matter to arbitration based on the arbitration clause in the contract note.
Previous Decisions
The DRT, by order dated 9 September 2009, had allowed the petitioner's preliminary objection and granted leave to PNB to withdraw the original application and submit to arbitration. The DRAT, by order dated 19 February 2015, allowed PNB's appeal, set aside the DRT order, and remitted the matter to the DRT for determination on merits.
Issues
Whether the DRT has jurisdiction to refer parties to arbitration under the RDDB Act despite the existence of an arbitration clause.
Whether the DRAT was correct in setting aside the DRT order and remitting the matter for determination on merits.
Submissions/Arguments
The petitioner argued that the arbitration clause in the contract note ousted the jurisdiction of the DRT and that the DRT correctly referred the parties to arbitration.
The respondent (PNB) argued that the RDDB Act is a special statute that overrides arbitration agreements and that the DRT had no jurisdiction to refer the matter to arbitration.
Ratio Decidendi
The Debt Recovery Tribunal, established under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, is a special tribunal with exclusive jurisdiction to adjudicate upon debts due to banks and financial institutions. The existence of an arbitration clause in a contract does not oust the jurisdiction of the DRT, as the RDDB Act is a special statute that overrides general arbitration agreements. Therefore, the DRT cannot refer parties to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.
Judgment Excerpts
By this petition under Articles 226 and 227 of the Constitution of India, the petitioner has challenged order dated 19 February 2015 made by the Debt Recovery Appellate Tribunal (DRAT).
The DRT, by cryptic order dated 9 September 2009, at a stage when the matter was posted for final arguments, entertained the preliminary objection raised by the petitioner and has held that the parties are required to be referred to arbitration, as envisaged in the contract note.
The PNB instituted Appeal No. 310 of 2009 before the DRAT, which has, by the impugned order dated 19 February 2015, allowed the appeal, set aside the DRT's order dated 9 September 2009 and remitted the matter to the DRT for determining the liability of the petitioner.
Procedural History
PNB filed Original Application No. 100 of 2005 under Section 19 of the RDDB Act before the DRT, Mumbai. The petitioner filed a written statement on 7 March 2006 raising a preliminary objection regarding an arbitration clause. On 9 September 2009, the DRT allowed the preliminary objection and granted leave to PNB to withdraw the application and submit to arbitration. PNB appealed to the DRAT, which on 19 February 2015 allowed the appeal, set aside the DRT order, and remitted the matter. The petitioner then filed the present writ petition before the Bombay High Court on 8 March 2016.
Acts & Sections
- Recovery of Debts Due to Banks and Financial Institutions Act, 1993: Section 19
- Constitution of India: Articles 226, 227
