BOOZ ALLEN AND HAMILTON vs. SBI HOME FINANCE Ltd. AND OTHERS is a landmark judgment in arbitration law, which covers issues concerning the scope of an arbitration agreement, arbitrability of the dispute, the limitation for applying section 8 of the arbitration act, what is “first statement” under section 8 of Arbitration Act.
CASE DETAILS
| Bench R.V. RAVEENDRAN J. J.M. PANCHAL J. | Case no. (2011) 5 SCC 532 | Acts/law Arbitration Act, 1996 |
LAW:
- Section 8 of Arbitration and Conciliation Act 1996,
- Section 34 of Arbitration and Conciliation Act 1996,
- Section 48 Arbitration and Conciliation Act 1996,
Requisites for reference under section 8 :
- Existence of arbitration agreement,
- Dispute is subject matter of arbitration,
- Application for reference to arbitration,
- Application by party to the agreement or anyone claiming through or under party,
- Application not later than date of submission of first statement,
SUIT:
SBI filed a mortgage suit in the high court of Bombay, against all the 3 defendants along with an application for interim relief under order 39 rule 1 & 2. The hon’ble high court had passed the interim order thereby directing the defendant not to create any third-party interest in the concerned property. Appellant herein or the defendant did not file any written statement to the said suit however filed the reply to the application for interim relief.
The appellant herein after filing of the reply had moved an application to invoke the section 8 of the Act, thereby seeking reference of the dispute to the arbitration in furtherance of the arbitration agreement.
HIGH COURT ORDER:
The Hon’ble High Court was pleased to dismiss the aforesaid application under section 8 of the Act and opined that:
- It is not open to make claim under section 8 of the Act as the claim made by the SBI is not a matter to the dispute in the Arbitration Act,
- Reply filed with regard interim relief is “first statement” as mentioned under section 8 of the Act,
- Appellant herein subjected himself to the jurisdiction of the High court and by filing reply to said application, therefore waived right under section 8 of the Act.
SPECIAL LEAVE PETITION:
The abovesaid order of the High Court has been objected before the hon’ble Supreme Court by filing present civil appeal.
Applicability of section 8 of the Act:
Apex court ascertained that following conditions should be satisfied before referring the parties to the arbitration agreement:
- Whether there is an arbitration agreement?
- Whether all the parties to the suit are parties to the arbitration agreement?
- Whether the dispute comes within scope of arbitration agreement?
- Whether application for reference under section 8 of the arbitration Act is filed before filing of the “first statement”?
ISSUES BEFORE APEX COURT:
- Whether subject matter of the suit was within the scope of the arbitration agreement?
- Whether appellant had filed first statement before filing of application under section 8 of the Act?
- Whether application filed under section 8 should be dismissed as the same was filed 20 months after entering into suit?
- Whether the subject matter of dispute is arbitrable?
RATIO OF JUDGMENT:
Dispute is within the scope of arbitration agreement:
Court opined that the subject matter of dispute and claim made by SBI falls within the scope of the arbitration agreement.
Reply to interim application is first statement or not? :
Court further observed that appellant had filed reply to the application for temporary injunction and did not file any written statement against the suit. High court had considered a reply to said application as first statement thereby pleased to dismiss the application under section 8 of the Act.
The question before the apex court is whether reply to the application should also be considered as first statement or not? If the said reply is considered as first statement it would be inferred that appellant has submitted to the jurisdiction of the court and waived the rights envisaged under section 8 of the Act.
It is settled preposition of law that any written statement, application, and affidavit filed will be authenticated as first statement, however whether reply to application will also be verified as first statement or not is still res integra?
In order to adjudicate the said issue court had relied on the Rashtriya Ispat Nigam Ltd. Vs. Verma Transport Co. (2006) 7 SCC 275 and comprehended that reply to application for interim relief will not amount to ‘first statement’ under section 8.
Supplemental proceeding:
Court observed that application for interim injunction or appointment of receiver is supplemental proceedings and if defendant is filing reply or contesting the said supplemental application same will not be treated as first statement under section 8 of the Act. Such contest at times even advanced to filing of revision and appeal therefore it cannot be examined that defendant has waived his right and subjected himself to the jurisdiction of the court.
Limitation in filing application for reference under section 8:
Section 8 of the Act do not specify any time period for filing an application for reference, the only pre requisite is to file the same before filing of the first statement.
Court further held that mere the passage of time after entering appearance into the suit and delay in date of filing of application under section 8 will not be inferred as waving of right and subjecting to the jurisdiction of court for adjudication of dispute.
The high court therefore was not justified in dismissing the application for reference on ground of delay and moreover considering the reply to the application for injunction as first statement.
Arbitrability of subject matter in dispute:
Court observed that under section 11 of the Act court has limited jurisdiction and arbitral tribunal will determine the question of Arbitrability. However, under section 8 of the Act court prima facie will have to affirm arbitrability of subject matter before referring it to arbitral tribunal.
Meaning of “arbitrability”:
- Whether dispute is enumerated in arbitration agreement?
- Whether the dispute is referred before the tribunal as in statement of claim or defense made before tribunal?
- Whether nature of dispute is such that it is capable of adjudication of by mode of arbitration?
Non-arbitrable disputes:
- Criminal offences,
- Matrimonial disputes,
- Guardianship,
- Insolvency and winding-up,
- Testamentary succession,
- Eviction or Tenancy etc.
These are certain lis where public forum/ national courts has been expressly and exclusively given power to adjudicate disputes concerning such subject matters. Section 34 (2) (b) and section 48 (2) of the Act, envisage that arbitral award will be set aside where the court finds that “subject matter of dispute is not capable of settlement by arbitration”.
Right in rem and personam:
Court emphasized on right in rem which is right against public and right in personam which is right against a person. General rule is that all the disputes concerning right in personam are esteemed to be amenable to arbitration and all dispute which assured right in rem or right against public should be settled by the public forum.
Arbitrability of mortgage suit:
In paragraph no. 46 court observed as under:
46. An agreement to sell or an agreement to mortgage does not involve any transfer of right in rem but creates only a personal obligation. Therefore, if specific performance is sought either in regard to an agreement to sell or an agreement to mortgage, the claim for specific performance will be arbitrable. On the other hand, a mortgage is a transfer of a right in rem. A mortgage suit for sale of the mortgaged property is an action in rem, for enforcement of a right in rem. A suit on mortgage is not a mere suit for money. A suit for enforcement of a mortgage being the enforcement of a right in rem, will have to be decided by the courts of law and not by Arbitral Tribunals.
In paragraph no. 50 court looked into the issues apprised before the trail court in suit:
- Whether there is a valid mortgage or charge in favour of SBI?
- What is the amount due to SBI?
- Whether SBI could seek eviction of the appellant from the flat, even if it is entitled to enforce the mortgage/charge?
51. If the three issues referred by the appellant are the only disputes, it may be possible to refer them to arbitration. But a mortgage suit is not only about determination of the existence of the mortgage or determination of the amount due. It is about enforcement of the mortgage with reference to an immovable property and adjudicating upon the rights and obligations of several classes of persons (referred to in para 48.2 above), who have the right to participate in the proceedings relating to the enforcement of the mortgage, vis-à-vis the mortgagor and mortgagee. Even if some of the issues or questions in a mortgage suit (as pointed out by the appellant) are arbitrable or could be decided by a private forum, the issues in a mortgage suit cannot be divided.
Conclusion:
The hon’ble supreme court was pleased to dismiss the appeal reason being the suit is for the enforcement of mortgage by sale, it could be tried only by the court and not by arbitral tribunal. A suit for enforcement of a mortgage being the enforcement of a right in rem, will have to be decided by the courts of law.