SUNIL KUMAR AGARWAL vs GOVIND RAM AGARWAL & ORS.

Pursuant to a previous direction in this appeal, the United Bank of India is represented and the authorised officer in connection with the relevant account is present in Court.

The disputes are between the members of the Agarwal family. The Agarwal patriarch is the respondent no.1 who has been served but is not represented. The appellant is one of the sons of the patriarch and the second and third respondents are the two brothers of the appellant. The appellant claims that though a Mandeville Gardens property has been secured in favour of the United Bank of India for certain credit facilities availed in course of the family business, the value of the property is well in excess of the claim of the bank. The bank has issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, but no steps have yet been taken under Section 13(4) thereof.

The disputes between the parties appear to be covered by an arbitration agreement. It is the appellant''s case that the excess proceeds from the sale of the Mandeville Gardens property, which has been secured in favour of the bank, is to be distributed among the brothers and a large portion thereof is to come to the appellant. The appellant says that upon the respondents not agreeing to the constitution of an arbitral tribunal for an arbitral reference to commence, the appellant has carried a request to the Chief Justice of this Court or his designate under Section 11 of the Arbitration and Conciliation Act, 1996.

The appellant instituted proceedings under Section 9 of the said Act of 1996 and an order was made therein on June 28, 2017, upon notice to the bank, that provided for the sale to be conducted, the bank to retain the proceeds to the extent of its claim and for a special officer or the like to retain the excess amount, subject to the outcome of the arbitral reference.

However, by the order impugned dated November 16, 2017, the order dated June 28, 2017 has been vacated on the ground that the bank can never be a party to proceedings under Section 9 of the Act of 1996 since the bank is not a party to the arbitration agreement. There are certain other observations as to the limited authority of the Court, particularly when a notice has been issued under Section 13(2) of the Act of 2002.

There appears to be consensus all round that the value of the Mandeville Gardens property is well in excess of the claim of the bank. It is true that the bank may have no role to play in the arbitral reference, but it would not enure to the benefit of any party or the bank if the property is not sold or the bank does not appropriate the proceeds to the extent of its claim. It is possible that certain interlocutory orders take the character of a final order and certain aspects of the suit are resolved even before the trial is commenced or any decree passed. Merely because the bank is not a party to the arbitration agreement should not deter the Court in finding a solution for the parties, subject to the non-party to the arbitration agreement having no reservation in participating in the proceedings.

The bank in the present case does not see any prejudice in the asset being directed to be sold and the bank retaining the sale proceeds with the right to appropriate the quantum of its claim, from out of such proceeds, subject to any negotiation that the bank may enter into with the debtors. As far as the balance sale proceeds are concerned, the bank does not find any prejudice in the same being made over to a special officer, which part of the order would fall within the domain of the arbitration agreement and the bank may have no connection therewith.

Accordingly, APO No.560 of 2017 and GA No.27 of 2018 are disposed of by setting aside the order impugned dated November 16, 2017 and by directing the bank to take immediate steps for the sale of the Mandeville Gardens property by publishing advertisements as the bank would in the usual course in terms of the rules under the said Act of 2002. It will be open to the parties to carry offers for the Mandeville Gardens property to the bank. The sale will be confirmed by the bank in favour of the highest bidder, subject to the entire bid amount being made over to the bank within four weeks of the highest bidder being identified. In default, an offer will be made to the second highest bidder to comply with similar terms. No right in respect of the property will accrue to any bidder till the entire consideration is paid.

The bank will retain a sum of Rs.4.55 crore out of the sale proceeds to cover the bank''s claim thus far of slightly over Rs.4.52 crore, the expenses for conducting the sale and further interest, if any. The balance amount will be transferred by the bank into another account in the same branch in the name of the joint special officers identified by an order dated July 6, 2017. Upon the bank appropriating the sum of Rs.4.55 crore towards its claim, the bank will enjoy no lien over the balance sale proceeds transferred to the independent account in the names of the special officers. The bank''s right to the sum of Rs.4.55 crore will be in accordance with law and subject to any negotiation that may be initiated by the debtors.

The special officers will create recurring short-term fixed deposits to retain the balance sale proceeds, which will abide by the result of the arbitral reference or, in the event arbitration is not allowed, the result of any suit that the appellant herein may file within four weeks of the request under Section 11 of the Act of 1996 being declined. In default of the suit being filed within the time permitted, it will be open to the respondents or any of them to apply to this Court for the proceeds in the hands of the special officers to be disbursed.

The other aspects of the disputes between the parties have not been gone into and it will be open to the parties to work out their remedies in course of the arbitral reference or in the possible suit. There will be no order as to costs.