Delhi High Court (July 30, 2001) 2001 (TLS)125848 2001-AD (Del)-6-768 :: 2001-ILRDLH-7-232 JINDAL FINANCIAL AND INVESTMENT SERVICES Vs. Prakash Industries Limited J. D. Kapoor ( 1 ) THIS is a petition under Section 9 of the arbitration and Conciliation Act, 1996 for restraining the respondents from selling, parting with possession, transferring, alienating or in any manner creating third party interest in the equipment namely Flameless Furance of Electrotherm make and also restrain the respondents from removing the equipment from its present location at the premises of the respondent at Champa, District bilaspur, Madhya Pradesh till the possession of the equipment is taken over by the receiver. Along with this the petitioner has also sought the appointment of the receiver to take over possession of the equipment for flameless Furnace of Electrotherm Meter (purchased by the petitioner firm from Electrotherm (India) Ltd. given on lease to the respondent by the petitioner firm under lease agreement dated 17/3/1994 and lying at the premises of the respondent at Champa. ( 2 ) THE solitary objection raised by the respondent no. 1 is that since the proceedings before the sole arbitrator have already been terminated in the eyes of law remedy under Section 9 is not available as it is only either during the pendency of the arbitration proceedings or before initiation thereof that a party can invoke provision of Section 9. ( 3 ) ADMITTEDLY the respondent company has been declared as a sick industrial company by the Board for industrial and, Financial Reconstruction (hereinafter referred to as the BIFR) vide its order dated 10/6/1998 and while passing the said order BIFR also directed the respondent company not to alienate or part with the possession of the assets of the company. ( 4 ) AS regards the equipment leased out to the respondent company it is contended that since it is immovable property inasmuch as the same is fixed to the ground the said lease transaction is governed by the law relating to the lease of immovable property under the transfer of Property Act. The relevant facts for deciding the aforesaid questions are as under: lease Agreement was entered into on 17th of february 1994 for a period of five years wherein this equipment was given by the petitioner to the respondent no. 1 on lease basis. As per the lease agreement the quarterly instalments were payable by the respondents. The relevant facts for deciding the aforesaid questions are as under: lease Agreement was entered into on 17th of february 1994 for a period of five years wherein this equipment was given by the petitioner to the respondent no. 1 on lease basis. As per the lease agreement the quarterly instalments were payable by the respondents. Only ten instalments were paid in all and as on 30. 10. 1999 a sum of Rs. 75,38,515. 00 had become due and payable by the respondent. Out of this about Rs. 50 lacs was towards principal amount. ( 5 ) THE certificate given by the respondent company for having taken the equipment on lease from the petitioner is as under: "to WHOMSOEVER IT MAY CONCERN 22/3/1994 this is to certify that the Equipment known as "flameless FURNACE" taken on Lease from m/s Jindal Financial and Investment Services vide lease Agreement No. JFIS/94/01 dated 17/2/1994 has been installed, commissioned and put into use from today at our plant Champa, distt. Bilaspur (MP ). For PRAKASH INDUSTRIES LIMITED sd. 00- illegible arvind NATH JHA deputy GENERAL MANAGER. " ( 6 ) VIDE letter dated 17/5/1996 respondent company requested the petitioner to reschedule the payment of Lease Rentals falling due during the financial year 1996-97 over the balance lease period starting from 1/4/1997. Similar requests were made vide letters dated 7/6/1996 and 25/11/1996. Since the respondents failed to make the payment and the petitioner did not want to give any further latitude, the latter invoked the arbitration clause by way of notice dated 13/1/1997. As a result of this the Arbitrtor was appointed and the proceedings commenced. However, before the arbitrator the terms of the settlement were reduced into writing. By way of agreement dated 30/8/1997 the respondent agreed to make the payment in instalments. It was clearly specified under the said agreement that in case of any failure to make the payment as per schedule, the settlement shall stand withdrawn and the original lease agreement would be reinstated. ( 7 ) AS regards the objection that the application under Sectton 9 is not maintainable because of the respondent company having been declared sick, the learned counsel for the petitioner has contended that the matter is squarely covered by a decision of this Court in OMP 323/99 dated 8/5/2001 passed by Hon ble Mr. ( 7 ) AS regards the objection that the application under Sectton 9 is not maintainable because of the respondent company having been declared sick, the learned counsel for the petitioner has contended that the matter is squarely covered by a decision of this Court in OMP 323/99 dated 8/5/2001 passed by Hon ble Mr. Justice Mukul Mudgal wherein it was held that "in this view of the matter I am satisfied that the ownership of the leased equipment in the present case, in accordance with the agreement between the parties clearly remained with the petitioner financing company. The provisions of section 22 would, therefore, not apply to the facts of the present case. In this view of the matter the appointment of the Receiver to secure the leased equipment cannot be resisted by the respondents and it is, therefore, directed that the Receiver will take possession of the said leased equipment as per the order of this. Court; dated 15/11/1999". In appeal, the Division Bench has also taken the same view. ( 8 ) ON the contrary the learned counsel for the respondent has relied upon M/s Sundaram Finance Limited vs. M/s NEPC India Limited. AIR 1999 SC 565 wherein the hon ble Supreme Court has held that the Court should ensure that effective steps are taken by the applicant for commencing the arbitral proceedings. ( 9 ) IN the instant case, the identical agreement was executed between the parties on 30th of August 1999 whereby the arrangement of payment by way of instalments was made. The contention of the respondent that the subsequent agreement dated 30/8/1997 has superceded the earlier agreement dated 17/2/ was negatived by the judgment dated 19/7/2000 of the Division Bench in FAO (OS) No 149/2000, (Prakash Industries Limited vs. Jindal Menthol and Investments Ltd.) whereby the appeal against the finding of the Single Judge repelling the contention of the respondent was dismissed. ( 10 ) AS regards the third objection that the application under Section 9 is not maintainable because the proceedings before the arbitrator are deemed to have been terminated in the eyes of law, the vagueness is attached to this plea as it lacks particulars as to on what date the proceedings were terminated and in what manner and also lacks in the reasons or the ground that culminated in the termination of the proceedings. The provisions of Section 32 postulate the circumstances that result in the termination of arbitral proceedings. It reads thus: "32. Termination of proceedings:- (1) the arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2 ). (2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where (a) the claimant withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute, (b) the parties agree on the termination of the proceedings, or (c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible. (3) Subject to section 33 and sub section (4) of section 34, the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings". ( 11 ) ARBITRAL proceedings terminate in the following eventualities:- " (I) if it is an unconditional final arbitral award; (ii) if the claimant without any objection withdraws his claim and the arbitral tribunal recognizes a legitimate interest on his part in obtaining final settlement of the dispute; (iii) if the parties agree on termination of the proceedings; (iv) if in the opinion of the arbitrator it is unnecessary or impossible to continue both the proceedings". ( 12 ) THE relevant covenant of agreement dated 30/8/1997 says: "that as on 30/08/97, PIL owes JFIS a sum of Rs. 32,07,444. 00 which PIL hereby admits and acknowledges. Both parties have agreed that in case of payment of Rs. 16,52,044. 00 by PIL to JFIS would stand discharged. In case PIL fails to pay aforesaid amount, then PIL would be liable to pay the amount as per the original lease agreement dated 17/2/1994 and this agreement would be null and void". Clause 3 of aforesaid agreement says "that on receipt of the said amount of rs. 16,52,044. 00 by JFIS, the ownership rights of the lease assets as described in the schedule of the lease agreement dated 17/2/1994 would vest in PIL and henceforth jfis shall have no right, title or interest in any manner whatsoever on the equipment set out in the schedule of the lease agreement dated 17/2/1994. All documents pertaining to the said equipment including bills, receipts to acquire the equipment etc. All documents pertaining to the said equipment including bills, receipts to acquire the equipment etc. would be handed over to PIL on the clearing of all the above mentioned cheques". ( 13 ) IT is admitted that none of the parties requested the arbitral Tribunal to record the settlement in the form of arbitral award. At the most it is a private settlement between the parties which results in temporary termination of the proceedings. ( 14 ) SETTLEMENT of the parties either through mediation or conciliation or as a result of their own efforts does not tantamount to an arbitral award or the culmination of the arbitral proceedings. It is an agreement for settlement between the parties and nothing more. Such a settlement or agreement does not foreclose doors for the award for ever. ( 15 ) SINCE in the instant case the settlement or the agreement between the parties is not in the form of arbitral award, it can have neither a status nor effect of the arbitral award. Section 35 provides the form of arbitral award which primarily has to be made and signed by the members of the arbitral tribunal and further that the arbitrator shall state the reasons upon which it is passed unless the award is arbitral award on agreed terms. Thus, by no stretch of imagination such a settlement unless recorded or reduced as award, can claim the sanctity or status of an award. ( 16 ) FURTHERMORE the agreement was between the two parties without involving the process or procedure of section 32 of the Act and, therefore, did not terminate the arbitral proceedings. Had it been so, the clause in the agreement would not have been introduced to the effect that "in case PIL fails to pay aforesaid amount, then PIL would be liable to pay the amount as per the original lease agreement dated 17/2/1994 and this agreement would be null and void". ( 17 ) SINCE the respondent has not paid agreed amount as per schedule the agreement dated 30/8/1997 has been rendered null and void and the original contract vide which the machinery was leased out shall stand revived. Similarty, Clauses 7 and 8 of the agreement also postulate the same interpretation which are as under: 7. ( 17 ) SINCE the respondent has not paid agreed amount as per schedule the agreement dated 30/8/1997 has been rendered null and void and the original contract vide which the machinery was leased out shall stand revived. Similarty, Clauses 7 and 8 of the agreement also postulate the same interpretation which are as under: 7. That in terms of the conditions stated heeinabove, the lease agreement dated 17/2/1994 stand determined/terminated on receipt of entire payment by JFIS as mentioned in schedule "a" annexed. The original Lease agreement shall remain valid and enforceable till PTL makes all the payments as per schedule "a" annexed. 8. The legal cases filed by both the parties pertaining to this transaction shall be withdrawn on realisation of cheques/pay order as given in schedule "a" annexed. ( 18 ) IT appears the petitioner has by virtue of agreement assumed the termination of the proceedings before the arbitrator whereas the fact remained that this agreement also provided that the original agreement shall remain valid and enforceable till the respondent made all the payments as per schedule. This also rules out any possible construction of the agreement dated 30/8/1997 being the final arbitral award or culminating into the termination of the proceedings before the arbitrator. ( 19 ) ONCE the original lease agreement is agreed to be revivable in the eventuality of the non-adherence of the terms of the settlement and schedule of the payment, the proceedings before the arbitrator cannot be deemed to have been terminated as contemplated by Section 32 of the act. Moreover both the parties have agreed that the cases filed by them pertaining to this transaction shall be withdrawn only on realisation of the cheques as per schedule A. The condition precedent to termination of the proceedings before the arbitrator was withdrawal of the cases by both the parties on realisation of the cheques or pay order as given in schedule "a". The aforesaid clause of the settlement shows that the proceedings before the arbitrator were terminated conditionally and not for all times to come. ( 20 ) FIRST part of the Section 30 (2) of the Act places obligation upon the arbitrator to terminate, the procaedings once the parties settle the disputes. The aforesaid clause of the settlement shows that the proceedings before the arbitrator were terminated conditionally and not for all times to come. ( 20 ) FIRST part of the Section 30 (2) of the Act places obligation upon the arbitrator to terminate, the procaedings once the parties settle the disputes. It is only when the settlement is reduced or recorded in the form of an arbitral award that the proceedings before the arbitrator stand terminated as the award has the same force as the decree of a civil court whereas out-of-Court spttlement between the parties does not stand on the same pedestal. The future right accrues to a party as settled and agreed between them. ( 21 ) THE contention of the learned counsel that once the proceedings before the arbitrator are terminated the remedy available to the petitioner is a civil remedy and not by way of invoking the arbitration clause is of no substance as the agreement between the parties as the one in question is not such an award which is enforceable undo the provisions of Section 36. No decision which is not enforceable under Section 36 can be termed as an award nor fines it come within the ambit of termination of arbitral proceedings. ( 22 ) NEXT contention of the learned counsel for the respondents is that the agreement in question shows that it was in the nature of agreement to sell the immovable property and as such the question of appointment of any receiver after receipt of consideration is not proper. ( 23 ) ADMITTEDLY, the agreed amount has still not been paid by the respondents. The contention that since the part of the payment of the agreed amount has been paid pursuant to the agreement to transfer the ownership rights of the machinery to the respondents, the provisions of Section 53 of the Transfer of Property Act would come into play is highly fallacious and untenable as neither is the machinery in question immovable property nor does any part payment made towards the total value vest any ownership rights. Had the payment of Rs. 16,52,044. 00 been made by the respondent as per schedule and as per settlement, the petitioner JFIS would not have any right on or title in the equipment/machinery. ( 24 ) MERELY because the machinery is affixed to the earth does not mean that it is immovable property. Had the payment of Rs. 16,52,044. 00 been made by the respondent as per schedule and as per settlement, the petitioner JFIS would not have any right on or title in the equipment/machinery. ( 24 ) MERELY because the machinery is affixed to the earth does not mean that it is immovable property. Any machinery or equipment or for that purpose any article attached to the earth by way of mechanical or any other process does not render it an immovable property. To imagine such a property as immovable property is beyond comprehension as with the same process it can be detached or removed also. ( 25 ) IN view of the aforesaid reasons, I do not find any merit in the objections and dismiss the same. ( 26 ) AS a result the petition is allowed as per players (a) and (b) which are as under: " (A-I) restrain the respondents from selling, parting with possession, transferring, alienating or in any manner creating third party interest in the equipment namely Flameless furnace of Electrotherm make and also restrain the respondents from removing the equipment from its present location at the premises of the respondent at Champa District Bilaspur Madhya pradesh till the possession of the equipment is taken over by the receiver; (a ii ). appoint Mr. Lal Abbey Singh working as Assistant. Manager with the petitioner firm or any other person found suitable by this hon ble Court, as receiver to take over possession of the equipment for Flameless furance of Electrotherm Meter (purchased by the petitioner Firm from Flectrotherm (India) Ltd. given on lease to the respondent by the petitioner Firm under Lease Agreement dated 17/3/1994 and lying at the premises of the respondent at Champa, District Bilaspur, Madhya pradesh: (b ). restrain the respondent No. 2 from selling, parting with possession, transferring, alienating or in any manner creating third party interest in premises bearing No. 36/78 Punjabi Bagh New Delhi till the disposed of the arbitration proceedings. Petition as well IA stand disposed of. --- *** --- .