LAW OF ARBITRATION- A land Mark Judgement of Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc -Curtsy : Mr. Anuj P. Agarwala and Miss KA Vishnupriya, - Advocates

6th September, 2012, a constitution bench of the Supreme Court of India, in the case of Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc [i], decided and laid down the law on the extent of intervention of Indian Courts in International Commercial Arbitrations. The bench also overruled two of its most criticized decisions i.e. the Bhatia International v. Bulk Trading [ii] (Bhatia International Case) along with the VentureGlobal Engineering v Satyam Computers Services [iii], (Venture Global Case).  This article seeks to bring forth the basic principles of Arbitration relevant to the changes brought about by this land-mark judgment.                        ARBITRATION IN INDIA In India, Arbitration is an adjudicatory dispute resolution process by a private forum, governed by the provisions of the Arbitration and Conciliation Act, 1996 (The Indian Act). All Arbitrations emanate from an Arbitration Agreement between the parties, by way of which they refer all their existing or future disputes to Arbitration.[iv]  DOMESTIC AND INTERNATIONAL ARBITRATION. What is Domestic Arbitration Domestic Arbitration takes place in India when the arbitration proceedings, the subject matter of the contract and the merits of the dispute are all governed by Indian Law, or when the cause of action for the dispute arises wholly in India or where the parties are otherwise subject to Indian jurisdiction.[v] What is International Arbitration International Arbitration can take place either within India or outside India in cases where there are ingredients of foreign origin relating to the parties or the subject matter of the dispute. The law applicable to the conduct of the arbitration and the merits of the dispute may be Indian Law or foreign law, depending on the contract in this regard, and the rules of conflict of laws. The most significant contribution of 1996 Act is the categorical definition of international commercial arbitration. Clause (f) of sub-section (1) of section 2 of the Indian Act defines international commercial arbitration as arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is: An individual who is a national of, or habitually resident in or any country other than India A corporate body which is incorporated in any country other than India A company or an association or a body of individuals whose central management and control is exercised in any country other than India The government of foreign country.[vi] Arbitration can take place in India in accordance with the same procedure as domestic arbitration. Arbitration becomes ‘international’ when at least one of the parties involved is resident or domiciled outside India or the subject matter of the dispute is abroad. In International arbitration the law applicable may be the Indian Law or a foreign law, depending on the terms of contract in this regard and the rules of conflict of laws.[vii] LAWS THAT GOVERN ARBITRATION: “There can be many different laws to govern the arbitration; the proper law of the contract, lex arbitri and the procedural law or the curial law.”[viii] In an international commercial arbitration, the parties are free to choose the seat of arbitration, the rules of law as applicable to the substances of the dispute and the rules of law which govern procedure of arbitration. At the outset, it is essential to identify, state and differentiate between the laws applicable to an international arbitration proceeding. It has been held in the case of National Thermal Power Corporation [ix] that in international commercial arbitrations, parties are at liberty to choose, expressly or by necessary implication, the law and the procedure to be made applicable. In Naviera Amazonica Peruana S.A. Vs. Compania Internacionale De Seguros Del Peru [x], the Court of Appeal summarized as follows “All contracts which provide for arbitration and contain a foreign element may involve three potentially relevant systems of law. (1) The law governing the substantive contract. (2) The law governing the agreement to arbitrate and the performance of that agreement. (3) The law governing the conduct of the arbitration. In the majority of cases all three will be the same. But (1) will often be different from (2) and (3). And occasionally, but rarely, (2) may also differ from (3).” The following are the relevant systems of laws which may be carved out from any international commercial arbitration.  1. LEX ARBITRI (The law of the seat of arbitration)     The Lex Arbitri is a set of ‘mandatory’ rules of law applicable to the arbitration at the seat of the arbitration. It also can be defined as the juridical seat of arbitration. Lex arbitri also “determines the relationship between the arbitral tribunal and national courts.” For instance, the extent to which court intervention during the arbitral proceedings is permissible. The law of the arbitration agreement (lex arbitri), may be different from the proper law (substantive law) and the procedural law (curial law). [xi] Proper law of the contract governs issues of interpretation, performance, non-performance and liability under the contract and is determined by using the conflict of law rules.” Curial law determines and governs the procedure of the arbitration proceedings. Contracting parties usually insert a clause to determine the proper law to govern the contract. “The lex arbitri is generally different from the proper law of the contract.”[xii] 2.  SUBSTANTIVE/PROPER LAW OF CONTRACT An International commercial arbitration agreement may provide for different laws to govern the contract and the arbitration agreement itself. While the former is the substantive/proper law of contract, the latter is the substantive/proper law of the arbitration agreement. Recognizing the Doctrine of Seperability, the Apex court in the case of National Thermal Power Corporation [xiii]  stated that the proper law of arbitration is the substantive law governing the arbitration agreement as distinct from the proper law governing the contract as a whole. It was further held: “The expression 'proper law of a contract' refers to the legal system by which the parties to the contract intended their contract to be governed. If their intention is expressly stated or if it can be clearly inferred from the contract itself or its surrounding circumstances, such intention determines the proper law of the contract. In the words of Lord Herchell, L.C.: ...In this case, as in all such cases, the whole of the contract must be looked at, and the contract must be regulated by the intention of the parties as appearing from the contract. It is perfectly competent to those who, under such circumstances as I have indicated, are entering into a contract, to indicate by the terms which they employ which system of law they intend to be applied to the construction of the contract, and to the determination of the rights arising out of the contract.” It was further held: “Where there is no express choice of the law governing the contact as a whole, or the arbitration agreement in particular, there is, in the absence of any contrary indication a presumption that the parties have intended that the proper law of the contract as well as the law governing the arbitration agreement are the same as the law of the country in which the arbitration is agreed to be held. On the other hand, where the proper law of the contract is expressly chosen by the parties, as in the present case, such law must, in the absence of an unmistakable intention to the contrary, govern the arbitration agreement which, though collateral or ancillary to the main contract, is nevertheless a part of such contract....” The Court made it clear that where the proper law of contract is chosen by the parties, the same must be held to govern the arbitration agreement, in the absence of an unmistakable intention to the contrary. The court further stated that there may be exceptional circumstances where the proper law of contract may differ from the proper law of arbitration agreement, but those exceptional circumstances were not discussed in the said judgment. 3. CURIAL LAW The Curial law or the Procedural law governs the procedure of the Arbitral Proceedings. For example, the International Chamber of Commerce Rules (ICC) and the United Nations Commission on International Trade Law Rules (UNCITRAL) are such curial or procedural laws that the parties agree to abide by with regard to the manner in which the proceedings may be held by the Arbitral Tribunal. It is sometimes possible for the curial law to be different from the law of the seat of arbitration. For instance, “parties can choose to hold arbitration in one country but make it subject to the procedural law of another country.” [xiv] In the Union of India case[xv], arbitration clause provided for the seat to be in London but the procedural law was the Indian Arbitration Act 1940. It was held that, “English procedural law governed the proceedings, with the addition of the sections of Indian Statute that were not inconsistent with English procedure, because Indian procedural law cannot override the mandatory provisions of the English Arbitration Act 1996.”   However, “if parties have not made an express agreement as to the law to govern the arbitral proceedings then it is usual that the law of the seat of arbitration will apply to the procedure.” [xvi] THE ARBITRATION AND CONCILIATION ACT, 1996 The Arbitration & Conciliation Act, 1996 (‘Indian Act’) is an Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto.  It came into force on 22.8.1996 and is deemed to have come into force on 25.1.96[xvii] The Indian Act is divided into Parts, Chapters, and Sections along with 3 Schedules. The Indian Act is based on the Model Law (a set of 36 Articles) which was drafted to govern all international arbitrations by a working group of the UN and was finally adopted by the U.N. Commission on International Trade Law (UNCITRAL) on June 21, 1985.[xviii] However, it must be noted that whereas the Model Law was meant for International Commercial Arbitrations, the Indian Legislature has adopted its provisions for the purpose of both, Domestic as well as International Commercial Arbitrations. PART I of the Indian Act, inter-alia, provides for powers of the Court such as referring the Parties to Arbitration (Sec.8), Granting Interim Relief (Sec.9), Appointment of Arbitrators (Sec.11), Power to set aside award (Sec.34). Section 2(2) of the Indian Act reads as follows: “(2) This Part shall apply where the place of arbitration is in India.” PART II of the Indian Act deals primarily with enforcement of Foreign Awards, where such awards are passed in countries which are signatories to the New York Convention (Chapter I) or the Geneva Convention (Chapter II). The 1996 Act was the result of recommendations for reform, particularly in the matter of speeding up the arbitration process and reducing intervention by the court.  The Supreme Court in Food Corporation of India v. Joginderpal [xix] observed that the law of arbitration must be `simple, less technical and more responsible to the actual reality of the situations’, `responsive to the canons of justice and fair play’. Principle of Non-Interference of Courts The goal of the Arbitration and Conciliation Act, 1996 is evident from its statement of Object and Reasons. The primary aim of the Arbitration and Conciliation Act, 1996 is to facilitate the speedy disposal and resolution of commercial disputes, supplemented by a minimum of supervisory role from the judiciary. The principle that the courts shall not interfere in arbitral proceedings is a fundamental theme underlying the Act. Section 5 of the Indian Act clearly states that save as provided in the provisions of Part I, no judicial authority can intervene in an Arbitration proceeding governed by the said part. The experience from the operation of this legislation, despite having been in force since the last 14 years, has not been very encouraging. Parties who have resorted to arbitration have gone away with the impression that the process is expensive and time consuming. Despite its purported goals of speedy dispute resolution, the Act has assumed a mechanism of slow motion. The interference of the Court has not been mitigated. On the other hand, most disputes have been referred to Courts before the arbitral process has been set into motion.[xx] BHATIA INTERNATIONAL JUDGMENT The Supreme Court of India, in the case of Bhatia International Case [xxi], gave an unprecedented judicial interpretation to Clause 2 of Section 2 of the Indian Act. The question was whether an application filed under Section 9 of the Act in the Court of the third Additional District Judge, Indore by the foreign party against the appellant praying for interim injunction restraining the appellant from alienating, transferring and/or creating third party rights, disposing of, dealing with and/or selling their business assets and properties, was maintainable. The Supreme Court referred to the similar provision in UNCITRAL Model law i.e. Art.1(2) which reads as follows: “The provisions of this law, except Articles 8, 9, 35 and 36, apply only if the place of arbitration is in the territory of this State.”  The Supreme Court highlighted the word ‘only’ and observed as follows: “Thus Art.  1(2) of the UNCITRAL Model Law uses the word “only” to emphasize that the provisions of that law are to apply if the place of arbitration is in the territory of that State. Significantly, in Section 2(2) the word “only” has been omitted. The omission of this word changes the whole complexion of the sentence. The omission of the word “only” in Section 2(2) indicates that this subsection is only an inclusive and clarificatory provision. As stated above, it is not providing that provisions of Part I do not apply to arbitrations which take place outside India.” The Supreme Court observed that if Part I of the Act is not made applicable to arbitration held outside India it would have serious consequences such as: (a) amount to holding that the Legislature has left a lacunae in the said Act. There would be lacunae as neither Part I or II would apply to arbitrations held in a country which is not a signatory to the New York Convention or the Geneva Convention.  It would mean that there is no law, in India, governing such arbitrations; (b) leave a party remediless in as much as in international commercial arbitrations which take place out of India the party would not be able to apply for interim relief in India even though the properties and assets are in India Thus, a party may not be able to get any interim relief at all. The Supreme Court made certain observations in respect of International commercial arbitrations which take place in a non-convention country. The Court observed that international commercial arbitration may be held in a non-convention country. Part II only applies to arbitrations which take place in a convention country.  The Supreme Court referred to the definition of international commercial arbitration which is defined in Section 2(f) of the Act and held that the definition makes no distinction between international commercial arbitration which takes place in India or those take place outside India.  The Supreme Court also observed that Sections 44 and 53 define foreign award as being award covered by arbitrations under the New York Convention and the Geneva Convention respectively.  Special provisions for enforcement of these foreign awards are made in Part II of the Act.  To the extent part II provides a separate definition of an arbitral award and separate provision for enforcement of foreign awards, the provision in Part I dealing with these aspects will not apply to such foreign awards. The three-judge bench concluded that “the provisions of Part I would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India the provisions of Part I would compulsorily apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part I. In cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement express or implied, exclude all or any of its provisions. In that case the laws or rules chosen by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or rules will not apply”.[xxii] [xxiii] Cases that followed: Various cases followed the precedent laid down in the Bhatia International case and worsened the effectiveness of Arbitration as an alternate dispute resolution mechanism. A few cases are as follows: In INDTEL Technical Services v. W.S. Atkins PLC[xxiv] , the issue was the appointment of an arbitrator in an arbitration application filed under section 11(9) of the Act. The parties in that case had chosen the proper law of contract as the law of England and Wales but the proper law of arbitration was not specified. The respondent argued that in the absence of the proper law of arbitration being chosen by the parties, it must be presumed from the proper law of contract. The Court rejected this contention on the ground that it was bound by the decision in Bhatia which had clearly held that in the absence of express or implied exclusion by parties, Part I of the Act would be applicable to International Commercial Arbitrations outside India. In Venture Global Engineering v Satyam Computers Services [xxv], the Supreme Court was of the opinion that the Indian Courts had the power to set aside foreign awards if the same were in opposition, or were contrary to the ‘public policy’ in India. The Apex court relied upon the ruling of Bhatia International and held: “That the provisions of Part I of the Act would apply to all arbitrations including international commercial arbitrations and to hold that where such arbitration is held in India, the provisions of Part-I would compulsorily extent permitted by the provisions of Part-I. IT is also clear that even in the case of international commercial arbitration held out of India provisions of Part-I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. We are also of the view that such an interpretation does not lead to any conflict between any of the provisions of the Act an there is no lacuna as such.” The ruling of the Apex Court in the Case of Bhatia International (Supra) opened flood-gates of litigation and defeated the very purpose of Arbitration as an ‘alternate dispute resolution’. The judicial interpretation given by the Court rendered the principle of ‘Non-intervention of Courts’ otiose and redundant. The above mentioned decisions literally strangled the growth of Arbitration in India. The reputation of India for its laws on Arbitration was tarnished and foreign investors and companies considered dealing with Indian companies or individuals risky. The parties to arbitration were left to wonder whether there is an incentive to incur the time and expense of arbitrating their disputes in the first instance if such disputes are to end up in court anyway. The precedents laid down by the Apex Court in Bhatia International, Venture Global and the various cases that followed, have been seen as major set-backs and disincentives for any foreign entity to deal with or invest in the Indian economy. LAW COMMISSION OF INDIA Realising the glaring errors and grave consequences following the ruling of the Apex Court in Bhatia International and Venture Global (Supra), the Law Commission of India in its 176thReport, titled “The Arbitration And Conciliation (Amendment) Bill, 2001” [xxvi] inter-alia, proposed to make the following amendment to Section 2 of the Indian Act :-                                                               In order to remove the difficulties stated above, it is proposed to amend Section 2(2) of the Arbitration and Conciliation Act, 1996 as follows: “(2) This part shall apply only where the place of arbitration is in India. Provided that provisions of Sections 9 and 27 shall also apply to international commercial arbitration where the place of arbitration is not in India if an award made in such place is enforceable and recognized under Part II of this Act.” However, the said bill is still pending in the Parliament of India. BHARAT ALUMINIUM COMPANY JUDGMENT [Bharat Aluminium Co. Vs Kaiser Aluminium Technical Service, Inc] A Constitutional bench of the Supreme Court of India, overruled its previous decision in the Bhatia International judgment by holding that the provisions of Part I of the Indian Act does not apply to arbitrations held outside India. A division bench of the Supreme Court, while dealing with  the cases of Bhatia International and Venture Global (Supra),. expressed different views on the interpretation of Clause 2 of Section 2 of the Indian Act. Therefore, the said appeals were listed before three judge bench. The said three judge bench referred the matter to the Constitution bench. The main questions that arose for the consideration of the bench were as follows: (a) What is meant by the place of arbitration as found in Sections 2(2) and 20 of  the Arbitration Act, 1996? ; (b) What is the meaning of the words “under the law of which the award is passed” under Section 48 of the Arbitration Act, 1996 and Article V (1)(e) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter referred to as “the New York Convention”)?; (c) Does Section 2(2) bar the application of Part I of the Arbitration Act, 1996 (Part I for brevity) to arbitrations where the place is outside India? ; (d) Does Part I apply at all stages of an arbitration, i.e., pre, during and post stages of the arbitral proceedings, in respect of all arbitrations, except for the areas specifically falling under Parts II and III of the Arbitration Act, 1996 (Part II and Part III hereinafter)?; and (e) Whether a suit for preservation of assets pending an arbitration proceeding is maintainable? The Supreme Court, following lengthy hearings which lasted for  months together, held as follows: 1. PART I of the Indian Act does not apply to arbitrations taking place outside India. The main question before the court was whether the absence of the word ‘only’ from   Sec 2 (2) would make Part I of the Act applicable to arbitrations held outside India. It was contended   that there was a conscious deviation from Article 1(2) of the UNCITRAL Model laws in omitting the word ‘only’ from Section 2(2). It was further contented that if Sec 2(2) is given a restricted interpretation, it would conflict with the other provisions of the Act. The Court however held that a plain reading of Section 2(2) makes it clear that Part I is limited in its application to arbitrations which take place in India. It followed the principle of literal interpretation and held that the omission of the word ‘only’ is of no relevance. Having regard to the intention of the Parliament it observed that Parliament by limiting the applicability of Part I, has given recognition to the principle of territoriality. It therefore held that Part I of the Arbitration Act, 1996 applies to arbitrations having their place/seat in India. Conflict with Section 2(4) and 2(5) and interpretation of Section 2(7):- The Court also considered the conflict between Section 2(2) and 2(4) and 2(5). It was urged that Section 2(4) makes Part I applicable to “every arbitration” under any other enactment, and thereby makes it applicable to arbitrations wherever held, whether in India or outside India. The Court however held that there was no conflict between the said provisions. Section 2(4) makes Part I applicable to “every arbitration under any other enactment for the time being in force”.  Such “any other enactment” would in its ordinary meaning contemplate only an Act made by the Indian Parliament. Section 2(5) is merely an extension to Section 2(4), and has to read with Section 2(2) and 2(4) collectively. The court further held that Section 2(7) of the Indian Act does not relax the territorial principal adopted by the Indian Act. It certainly does not introduce the concept of a delocalized arbitration into the Indian Act. The court clarified that Section 2(7) is enacted to allow the Indian Courts to supervise over a “domestically rendered international commercial award”, which may be passed in an arbitration proceedings between two foreign parties within India. Apart from the main question of applicability under Section 2, the Apex Court inter-alia, also held as follows: 2. No interim relief can be granted under Section 9 of the Indian Act in arbitrations held outside India – The court clarified that where the seat of the arbitration is not in India, no interim relief can be granted to any party under Section 9 of the Indian Act. The court, in its opinion stated that giving a ‘purposive’ interpretation to section 9 would be destructive of the territorial principles upon which the UNCITRAL Model Laws are premised which have been adopted by the Indian Act. This means that no civil suit can be instituted by a party for the purpose of attaining any interim relief which is a subject matter of the arbitration proceedings. 3. Award made in a foreign country cannot be challenged under Section 34 The Supreme Court held that section 34 of the Indian Act could only be invoked to challenge an award where the seat of arbitration is in India. The Supreme Court thus over-ruled its ratio laid down in the famous case of Venture Global (Supra). 4. Non convention awards not enforceable under the Indian Act The Court clarified that merely because the Indian Act does not cover non-convention awards, the same would not create a lacuna therein. It was held that if there was no lacuna in  three different instruments i.e. i.e. the Arbitration Act, 1940 read with 1961 Act, and the Arbitration (Protocol and Convention) Act, 1937, it cannot be now said to be a lacuna when the above three laws are consolidated into one single Act i.e. the Indian Act. 5. Seat of arbitration and the applicable law. The Court held that when the seat of arbitration is a foreign country, it is an inevitable acceptance that the law of that country would apply for the conduct and supervision of the arbitration proceedings. It was further clarified that if the arbitration agreement provides for a seat of proceedings to a foreign country and the procedural law to be that of the Indian Act, it would not make Part I applicable or enable the courts to exercise jurisdiction over the proceedings or the award. It would only mean that the parties have contractually imported those provisions which are concerned with the internal conduct of their arbitration and which are not inconsistent with the mandatory provisions of the Procedural Law/Curial Law of the foreign country, where the arbitration is seated. This is because Part I of the Indian Act ‘only’ applies to arbitrations having their seat in India. 6. Section 28 of the Indian Act only includes international arbitrations with a seat in India:- The counsel for the appellants argued that Section 28 is another indication of the intention of the Parliament that Part I of the Arbitration Act, 1996 was not confined to arbitrations which take place in India. The Court however held that the only purpose of Section 28 is to identify the rules that would be applicable to the “substance of dispute.” The court held that the said provision was to ensure that two or more Indian Parties do not circumvent the substantive Indian law by resorting to Arbitration. This said section makes a distinction between purely domestic arbitrations and international commercial arbitrations, with a seat in India.  It merely shows that the legislature has segregated the domestic and international arbitration. Therefore, to suit India, conflict of law rules have been suitably modified, where the arbitration is in India. The said provision will not apply where the seat is outside India. In that event, the conflict of laws rules of the country in which the arbitration takes place would have to be applied. 7. Interpretation and applicability of Part II The counsel for the appellants argued that even some of the provisions contained in Part II would indicate that Part I of the Arbitration Act, 1996 would not be limited to the arbitrations which take place in India. It was pointed out that even though Part II deals specifically with recognition and enforcement of certain foreign awards yet provision is made for annulment of the award by two courts. Thus, it recognizes concurrent jurisdiction of courts in two countries. The Court clarified that there is no overlapping of the provisions of Part I and Part II of the Act and THAT Part II is not merely supplementary. There is complete segregation between both the parts as Part I deals with all four phases of arbitration-commencement, conduct, challenge and recognition and enforcement whereas Part II pertains only to recognition and enforcement of foreign awards. Reiterating the principles of Lex Arbitri, it was held that keeping in scheme with the international instruments such as the Geneva Convention and the New York Convention as well as the UNCITRAL Model Law, it is clear that the regulation of conduct of arbitration and challenge to an award would have to be done by the courts of the country in which the arbitration is being conducted. Over-ruling its own decision in Venture Global case (Supra), the court further clarified that any award made in any international arbitration is not open to challenge under Part I Section 34 of the Indian Act. Conclusion:- The Supreme Court by this landmark judgment has overruled the laws laid down in the Bhatia International case, which held that Part I of the Indian act would apply to arbitrations held outside India. This implies that the provisions of part I including but not limited to Section 9 (Interim measures by the Court), Section 11 (Appointment of Arbitrators), Section 20 (Place of Arbitration) and Section 34 (Application for setting aside arbitral award) amongst others, would only be available to any party where the International Commercial Arbitration takes place in India. Thus, Part I of the Indian Act will ‘only’ apply to those arbitrations which are seated in India. The said case has also over-ruled the Venture Global Case, which had followed Bhatia International to hold that a foreign award made outside India could be challenged under Section 34 of the Indian Act. Therefore, any award made in International Commercial Arbitrations held outside India cannot be challenged under Section 34 of the Indian Act. The Bhatia International and Venture Global decisions had been seen as major impediments in the growth of Arbitration as a successful mode of Alternate Dispute Resolution. The Bharat Aluminium Company judgment will go a long way to improve the tarnished image of the Indian Arbitration system. However, it must be noted that the law laid down by the Supreme Court by this judgment shall apply prospectively, only to arbitration agreements executed hereafter. This means that all arbitration agreements executed, all arbitration proceedings pending or arbitration applications/petitions pending in the Indian Courts will remain unaffected by this judgment. The Apex Court has clarified and settled the law as regards the intervention of Indian Courts in International Commercial Arbitrations and has upheld the doctrine of minimum intervention of courts in arbitration, which is the basic underlying objective of the Indian Act. Courtsy :  Mr. Anuj P. Agarwala and Miss KA Vishnupriya, - Advocates SOURCES AND CITATIONS [i] Civil Appeal Number 7019 of 2005 [ii] (2002) 4 SCC 105 [iii] 2008(1) SCALE 214 [iv] Markanda PC, “Law Relating to Arbitration and Concilitaion”, 6th Edition, Wadhwa Nagpur, 2006. [v] Ibid. [vi] Arbitration and Conciliation Act, 1996 (No. 26 of 1996) [vii] Anuj P. Agarwala, “Alternate Dispute Resolution, A Bane Or Boon For The Indian Judiciary” [viii]  [A. Redfern, M. Hunter, Law and Practice of International Commercial Arbitration, Sweet Maxwell, 4th Edition, 2004] [ix] [1992]3SCR106 [x] 1988 (1) Lloyd’s Law Reports 116 [xi] Ramazan Zorlu, “International Arbitration And Lex Arbitri” [xii] INDTEL Technical Services v. W.S. Atkins PLC : (2008) 10 SCC 308 [xiii] Supra, point VIII [xiv] Union of India v Mc Donnell Douglas [1993] 2 Lloyds Rep. 48] [xv] Ibid [xvi]  A.Tweedale, K.Tweedale, op cit, chap. 7.62 [xvii] M/s Fuerst Day Lawson Ltd. v. Jindal Exports Ltd,. (2001 (3) SCALE 708) [xviii] Supra, point VI [xix] 1989 AIR 126, [xx] Dr. Justice Sharma, M.K, “Arbitration as an ADRM”, All India Seminar on Judicial Reforms). [xxi] Supra, Note I [xxii] Supra, Note VI [xxiii] Vidhu Gupta, ”Stretching the limits of statutory interpretation: critical review of Bhatia International v. Bulk Trading” [xxiv] (2008) 10 SCC 308 [xxv] Supra, point II [xxvi] Available at http://lawcommissionofindia.nic.in/

Points to be raised in Securtisation Appeal & Relief

It has almost settled and become like a regular practice for the borrowers to question the proceedings initiated by the Banks at the last stage under the provisions of “Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)”. In fact, the law mandates that the aggrieved can approach the Debt Recovery Tribunal under section 17 of the SARFAESI Act, 2002 within 45 days from the date of issuance of notice under section 13 (4) of the Act. However, as the process of recovery of money do not end at the issuance of section 13 (4) of the Act and as it is likely that the Bank can commit mistakes in the process and process even after the issuance of notice under section 13 (4), it is settled that the borrower is entitled to question all steps initiated by the Bank under the provisions of SARFAESI Act, 2002. The borrowers have started questioning the Sale Process conducted by the Bank and also started questioning the order of the Magistrate under section 14 of the Act before the High Court regularly and as a result, the Courts have consistently held that the borrower is entitled to question all the steps initiated by the Bank under the provisions of SARFAESI Act, 2002. There is another point in this. If the borrower is silent even after the receipt of notice under section 13 (4) and do not prefer any appeal, there can be an argument from the Bank that there is nothing wrong in the proceedings initiated by the Bank till the notice under section 13 (4). If such an argument is accepted and if the borrower is silent even after the receipt of notice under section 13 (4) of the Act, then, the scope of Appeal preferred by the borrower at a subsequent stage gets narrowed-down. If the Borrower challenges the Sale Process only, the borrower may have to confine himself to the illegalities committed by the Bank in the Sale Process. However, if the borrower could offer some kind of explanation as to why he could not challenge the proceedings initiated by the Bank under section 13 (4) of the Act, then, he must be allowed to raise all the points in his Appeal under section 17 of SARFAESI Act, 2002. 

When an Appeal is prepared or preferred under section 17 of the SARFAESI Act, 2002, there will be usual grounds with the intention of getting some time to repay the loan. The usual grounds are vague and are like: 

1. The borrower is not a willful defaulter. 

2. The classification of Account as ‘Non-performing Asset (NPA)’ is incorrect. 

3. The interested charged is exorbitant. 

4. No notice or caution is issued by the Bank before classifying the Account as ‘NPA’. 

5. The outstanding claimed by the Bank is incorrect. 

6. The value of the ‘secured asset’ mortgaged with the Bank is much more than the outstanding loan. 

7. The Bank has not issued any notice or demand notice under section 13 (2) or 13 (4) of the Act etc. 

These are the usual grounds in any SARFAESI Appeal preferred by the borrower under section 17 of the Act. As the law is settled that the procedure prescribed under the provisions of SARFAESI Act, 2002 is mandatory, the Debt Recovery Tribunal has to give a serious thought to the averment made in the Appeal that no demand notice is received by the borrower under section 13 (2) or 13 (4). If that is established, then, the Appeal deserves to be allowed straight-away and without any further enquiry. But, for knowing this, the DRT may give notice to the Bank to file their counter and to ascertain the truth. This process will take time as there will be a procedure for the paper work done legally in any Public Sector Bank. At times, it may take few months also.  In view of the averments in the Appeal that no notice is issued under section 13 (2) or 13 (4), the DRT may consider granting relief to the Appellant or the borrower. While doing so, the Debt Recovery Tribunal will consider the outstanding payable, the security and the averments with regard to the value of security mortgaged with the Bank.  In view of these practical and procedural difficulties, the DRT may be forced to grant an interim-stay of further proceedings initiated by the Bank and the DRT may insist that the borrower remits some deposit and usually it can be from 10% to 30% depending upon the discretion of the DRT. It all depends upon the averments made in the Appeal. It would be extremely difficult for the DRT to ascertain the facts by looking at the averments in the Appeal and if the DRT refrains from granting any interim-order, then, there is a possibility that the Bank proceeds with the process and even can complete the Sale Process at times creating some third party interest which will further complicate issues. 

But, when a borrower is serious in raising objections in his appeal under section 17, those objections to be in detail and specific. If the grounds in an Appeal under section 17 of SARFAESI Act, 2002 are mechanical and vague, then, it is very much possible for the DRT to come to an easy conclusion that the Appeal is preferred only to drag the proceedings and nothing more. In those circumstances, as soon as the Bank files its counter affidavit answering all the allegations in the Appeal preferred under section 17, the DRT may dismiss the Appeal. If the Appeal grounds are so vague and mechanical, it would be very difficult for the borrower to bring any new or additional facts in any further appeal proceedings before the DRAT or to the High Court subsequently. However, if the borrower chooses to file an appeal challenging the possession notice issued by the bank under section 13 (4) and while the Appeal is pending if the Bank goes ahead with further process with infirmities and illegalities, then, the Borrower is entitled to bring those further infirmities and illegalities in the form of an additional affidavit in the Appeal. As such, when the borrower is serious in his attempt to fight with the Bank challenging the SARFAESI proceedings under section 17 of the Act, pleadings to be detailed and perfect rather mechanical and vague. Even the DRT may not give much weight to the Appeal and the equities beyond a certain point if the grounds raised in the Appeal under section 17 are so vague and mechanical. 

There may be instances where the borrower is not interested to fight with the Bank and instead may want to update the loan account and he must even have taken steps to do that. Under such circumstances, if the Bank is unreasonable and proceeds with their proceedings, then, the borrower can very well stick to his stand very firmly that he is not willful defaulter, has a fairly good track record in repayment issues, has the valuable security lying with the Bank and can continue to insist that the Bank is illegal in not agreeing to update the Account. It is a very interesting point if this stand is taken before the DRT. The DRT is empowered with certain powers under section 17 while entertaining an appeal from the borrower or any aggrieved person. Initially, the function of the DRT is to look into the procedural lapses committed by the Bank and nothing more. Later-on, the Courts have expanded the scope of powers of DRT and held that the DRT can look into the disputes pertaining to the outstanding claimed and all other issues and the DRT is even empowered to restore the possession back to the borrower if the physical possession of the property is taken by the Bank already. However, the DRT continues to exercise very limited powers and due this also; many Writ Petitions are filed to the High Court and even on SARFAESI issues, the High Courts issue directions to the Bank very frequently. While the DRT exercises some limited powers, there can not be any limitation on the powers or the power to issue directions by the High Court from time to time under Article 226 of Constitution of India. 

Irrespective of the powers of the DRT under section 17 of SARFAESI Act, 2002, the borrowers should take-up all possible legal points in detail to the extent possible. Only due to the confusion with regard to the powers of DRT under section 17, the borrowers continue to approach Civil Courts at times and continue to approach the High Court very regularly. There can be a case where the borrower admits the minor default in repayment, he must have been other-wise good in repayment issues and must have expressed his willingness to update his account without raising any kind of litigation. If such is the attitude of the borrower, then, the borrower may prefer to approach the High Court seeking a suitable direction to allow him to get his account updated as even the RBI guidelines permit that and cautions against unnecessary harassment to the borrowers using technicalities. If this kind of cases are taken to DRT, then, apart from the expenses involved, the procedure before the DRT is different and the procedure delays the efforts of the borrower to get his account updated and the DRT may finally choose to look into the issue as to whether there is any procedural irregularity on the part of the Bank under the Act. An account which should have been updated very easily, may end-up as ‘Non-performing Asset’ forcibly and can lead to long litigation with the DRT, DRAT, High Court and Supreme Court and more interim applications in-between. It will not benefit either the borrower or the Bank and the Bank must be with the intention that they can recover the legal expenses incurred from the borrower finally. 

As such, the borrowers should be very clear in their approach and should be careful in raising objections in their Appeal under section 17 of the SARFAESI Act, 2002.   

Co-parcener right to maintain suit for injunction

Coparcener has no right to maintain a suit for permanent injunction restraining the Manager or Karta from alienating the coparcenary property and the coparcener has the right only to challenge the alienation of coparcenary property and recover back the property after alienation has come into being.

 Ram Prakash being the Defendant in the original suit as Karta of joint Hindu family executed an agreement to sell suit property for a consideration and he received earnest money. As the Defendant refused to execute the sale deed, the defendant Jai Bhagwan instituted a suit in the court of Sub-Judge for specific performance of the agreement to sell and in the alternative for a decree for recovery of money. In the said suit the appellants are the sons of defendant Ram Prakash who made an application for being impleaded. Application, however, was dismissed.

 Thereafter three sons of Ram Prakash being the defendant as plaintiffs instituted Civil Suit in the Court of Sub-Judge for the permanent injunction stating inter alia that the said property was joint Hindu Family coparcenary property of the plaintiffs and defendant. That there was no legal necessity for sale of the property nor it was an act of a good management to sell the same to the defendant Jai Bhagwan without the consent of the plaintiffs and without any legal necessity.

 It was prayed that a decree for permanent injunction be passed in favour of the plaintiffs and against the defendant Ram Prakash restraining him from selling or alienating the property to the defendant Jai Bhagwan or to any other person and also restraining Jai Bhagwan from proceeding with the suit for specific performance pending in the civil court. Jai Bhagwan since deceased, filed a written statement stating inter alia that the Ram Prakash disclosed that the suit property was owned by him and that he was in need of money for meeting the expenses of the family including the education expenses of the children and also for the marriage of his daughters. It has also been pleaded that the house in question fetched a very low income from rent and as such the Ram Prakash, who has been residing in Delhi, did not think it profitable to keep the house.

It has also been stated that the suit was not maintainable in law and the injunction as prayed for could not be granted. The Trial Court after hearing the parties and considering the evidences on record held that the house property in question was the ancestral property of the Joint Hindu Mitakshara Family and the Ram Prakash who is the father of the plaintiffs was not competent to sell the same except for legal necessity or for the benefit of the estate since the plaintiffs' application for impleading them as party in the suit for specific performance of contract of sale, was dismissed the filing of the present suit was the only remedy available to the plaintiffs. The plaintiffs being coparceners having interest in the property, suit in the present form is maintainable. The Trial Court further held that:

“It is well settled law that Karta of the joint Hindu family cannot alienate the coparcenary property without legal necessity and coparcener has right to restrain the Karta from alienating the coparcenary property, if the sale is without legal necessity and is not for the benefit of the estate. This view of mine is supported by case titled “Shiv Kumar vs. Mool Chand” reported in CLJ 1971 page 1027 thus, the proposed sale is without any legal necessity and is not for the benefit of the estate, therefore the suit of the plaintiff is decreed with no orders as to costs.”

Against this judgment and decree defendants, the legal representatives of the deceased Jai Bhagwan preferred an appeal. The lower appellate court following the decision in Jujhar Singh vs. Giani Talok Singh, [1986] PLJ 346 held that a coparcener has no right to maintain a suit for permanent injunction restraining the Manager or Karta from alienating the coparcenary property and the coparcener has the right only to challenge the alienation of coparcenary property and recover back the property after alienation has come into being.

Court of appeal below further held:

Ram Prakash, father of the plaintiffs and Karta of the joint coparcenary property cannot be restrained by way of injunction from alienating the coparcenary property to Jai Bhagwan. In consequence, the appeal is accepted and the judgment and decree of the trial court under attack are set aside.

Against this judgment and decree, the instant appeal on special leave has been preferred by the appellants i.e. the sons of the Ram Prakash, the Karta of the Joint Hindu Family.

In this appeal we are called upon to decide the only question whether a suit for permanent injunction restraining the Karta of the joint Hindu family from alienating the house property belonging to the joint Hindu family in pursuance of the agreement to sell executed already in favour of the predecessor of the appellants, Jai Bhagwan, since deceased, is maintainable.

 It is well settled that in a Joint Hindu Mitakshara Family, a son acquires by birth an interest equal to that of the father in ancestral property. The father by reason of his paternal relation and his position as the head of the family is its Manager and he is entitled to alienate joint family property so as to bind the interests of both adult and minor coparceners in the property, provided that the alienation is made for legal necessity or for the benefit of the estate or for meeting an antecedent debt. The power of the Manager of a joint Hindu family to alienate a joint Hindu family property is analogous to that of a Manager for an infant heir as observed by the Judicial Committee in Hunooman persaud Panday vs. Mussumat Babooee Munraj Koonweree, Moore's on Indian Appeal ( 1856, Vol. VI) 393:

 “The power of a Manager for an infant heir to charge ancestral estate by loan or mortgage, is, by the Hindu Law, a limited and qualified power, which can only be exercised rightly by the Manager in a case of need, or for the benefit of the estate. But where the charge is one that a prudent owner would make in order to benefit the estate, a bona fide lender is not affected by the precedent mismanagement of the estate. The actual pressure on the estate, the danger to be averted, or the benefit to be conferred, in the particular instance, or the criteria to be regarded. If that danger arises from any misconduct to which the lender has been a party, he cannot take advantage of his own wrong to support a charge in his favour against the heir, grounded on a necessity which his own wrong has helped to cause. A lender, however, in such circumstances, is bound to inquire into the necessities of the loan, and to satisfy himself as well as he can, with reference to the parties with whom he is dealing, that the Manager is acting in the particular instance for the benefit of the estate. If he does inquire, and acts honestly, the real existence of an alleged and reasonably credited necessity is not a condition precedent to the validity of his charge, which renders him bound to see to the application of the money.”

At the outset it is to be noticed that in a suit for permanent injunction under section 38 of the Specific Relief Act by a coparcener against the father or Manager of the Joint Hindu family property, an injunction cannot be granted as the coparcener has got equally efficacious remedy to get the sale set aside and recover possession of the property. Sub-Section (h) of Section 38 of Specific Relief Act bars the grant of such an injunction in the suit. Secondly, the plaintiff respondents brought this suit for permanent injunction restraining their father from selling or alienating the property to the Jai Bhagwan or any other person and also restraining the Jai Bhagwan from proceeding with the suit for specific performance of the agreement to sell pending in the civil court.

Thus the relief sought for is to restrain by permanent injunction the Karta of the Joint Hindu Mitakshara Family from selling or alienating the house property in question. Ram Prakash as Karta of the joint Hindu family has undoubtedly, the power to alienate the joint family property for legal necessity or for the benefit of the estate as well as for meeting antecedent debts. The grant of such a relief will have the effect of preventing the father permanently from selling or transferring the suit property belonging to the joint Hindu Undivided Family even if there is a genuine legal necessity for such transfer.

If such a suit for injunction is held maintainable the effect will be that whenever the father as Karta of the Joint Hindu coparcener property will propose to sell such property owing to a bona fide legal necessity, any coparcener may come up with such a suit for permanent injunction and the father will not be able to sell the property for legal necessity until and unless that suit is decided.

Judgment in Shiv Kumar Mool Chand Arora v. Mool Chand Jaswant Singh, AIR 1972 (Punjab & Haryana) 147 wherein it was held that a suit for permanent injunction against the father to restrain him from alienating the joint Hindu family property was maintainable has been off-set by Division Bench in Jujhar Singh v. Ciani Talok Singh, (supra) wherein it has been held that a suit for permanent injunction by a coparcener against father for restraining him from alienating the house property belonging to the joint Hindu family for legal necessity was not maintainable because the coparcener had got the remedy of challenging the sale and getting it set aside in a suit subsequent to the completion of the sale.

 Following this decision the High Court allowed the appeal holding that the suit was not maintainable reversing the judgment and decree of the Trial Court. We do not find any infirmity in the findings arrived at by the High Court. It has, however, been submitted on behalf of the appellant that the High Court should have held that in appropriate cases where there are acts of waste, a suit for permanent injunction may be brought against the Karta of the joint Hindu family to restrain him from alienating the property of the joint Hindu family. This question is not required to be considered as we have already held that the instant suit for injunction as framed is not maintainable.

 We, of course, make it clear that in case of waste or ouster an injunction may be granted against the Manager of the joint Hindu family at the instance of the coparcener. But nonetheless a blanket injunction restraining permanently from alienating the property of the joint Hindu family even in the case of legal necessity, cannot be granted. It further appears that the Ram Prakash entered into the agreement of sale stating that he is the owner of the suit property. The plaintiff-appellants claim the suit property as ancestral property and they as coparceners of joint Hindu Mitakshara family have equal shares with their father in the suit property. The question whether the suit property is the self-acquired property of the father or it is the ancestral property has to be decided before granting any relief. The suit being one for permanent injunction, this question cannot be gone into and decided. It is also pertinent to note in this connection that the case of specific performance of agreement of sale bearing suit had already been decreed by the Sub-Judge. For the reasons aforesaid we affirm the judgment and decree made by the High Court and dismiss the appeal without any order as to costs.

Summary of opinion of Jagannath Shetty J:

 I agree that this appeal should be dismissed but I add a few words of my own. The question raised in the appeal is whether interference of the Court could be sought by a coparcener to interdict the Karta of Hindu undivided family from alienating coparcenary property. The question is of considerable importance and there seems to be but little authority in decided cases.

 The facts of the case lie in a narrow compass. Ram Prakash entered into agreement for sale of certain house property in favour of Jai Bhagwan. The property has been described in the agreement as self-acquired property of Ram Prakash. It was agreed to be sold. Jai Bhagwan paid earnest money on the date of agreement. He promised to pay the balance on the date of execution of the sale deed. Ram Prakash, however, did not keep up his promise. He did not execute the sale deed though called upon to do so. Jai Bhagwan instituted a suit for specific performance of the agreement. In that suit, Rakesh Kumar and his brothers who are the sons of Ram Prakash wanted to be impleaded as parties to the suit. They want to resist the suit for specific performance. But the (Court did not permit them. The Court said that they were unnecessary parties to the suit. Being unsuccessful in that attempt, they instituted a suit for permanent injunction against their father. They wanted the Court to restrain their father from alienating the house property to Jai Bhagwan or to anybody else. Their case was that the said house was their coparcenary property and the proposed sale was neither for legal necessity nor for benefit of the joint family estate.

The suit for injunction was practically tried as a suit for declaration. A lot of evidence was adduced on various issues, including the nature of the suit property. The trial court ultimately decreed the suit with the following findings:

Suit property was coparcenary property of the joint family consisting of Ram Prakash and his sons. Jai Bhagwan has failed to prove that the proposed sale was for legal necessity of the joint family. He has also failed to prove that the intended sale was for benefit of the estate. Ram Prakash being the manager of the family cannot alienate coparcenary property in the absence of those two requirements. The sons could restrain their father from alienating the coparcenary property since the proposed sale was without justification Jai Bhagwan died during the pendency of the suit. His wife and children challenged the decree of the trial court in an appeal before Additional District Judge. By then, the Punjab & Haryana High Court had declared in Jujhar Singh v. Giani Talok Singh, [1968] P.L J. 346 that a suit for injunction to restrain Karta from alienating coparcenary property is not maintainable. The learned District Judge following the said decision reversed the decree of the trial court and dismissed the suit. The plaintiff preferred second appeal which was summarily dismissed by the High Court.

 Plaintiffs, by special leave, have appealed to this Court. The arguments for the appellants appear to be attractive and are as follows:

There is no presumption under law that the alienation of joint family property made by Karta is valid. The Karta has no arbitrary power to alienate joint family property. He could do so only for legal necessity or for family benefit. When both the requirements are wanting in the case, the coparceners need not vainly wait till the transaction is completed to their detriment. They are entitled to a share in the suit property. They are interested in preserving the property for the family. They could, therefore, legitimately move the court for an action against the Karta in the nature of a quia timet.

As a preliminary to the consideration of the question urged, it will be necessary to examine the structure of joint Hindu family, its incidents and the power of Karta or manager thereof. The status of the undivided Hindu family or the coparcenary is apparently, too familiar to everyone to require discussion. I may, however, refer in laconic details what is just necessary for determining the question urged in this appeal.

 Those who are of individualistic attitude and separate ownership may find it hard to understand the significance of a Hindu joint family and joint property. But it is there from the ancient time perhaps, as a social necessity. A Hindu joint family consists of male members descended lineally from a common male ancestor, together with their mothers, wives or widows and unmarried daughters. They are bound together by the fundamental principle of sapindaship or family relationship which is the essential feature of the institution. The cord that knits the members of the family is not property but the relationship of one another. The coparcenary consists of only those persons who have taken by birth an interest in the property of the holder and who can enforce a partition, whenever they like. It is a narrower body than joint family. It commences with a common ancestor and includes a holder of joint property and only those males in his male line who are not removed from him by more than three degrees. The reason why coparcenership is so limited is to be found in the tenet of the Hindu religion that only male descendants upto three degrees can offer spiritual ministration to an ancestor only males can be coparceners. [See: Hindu Law by A N.R. Raghavachariar 8th Ed. p. 202]. In an early case of Madras High Court in Sudarshan Maistri v. Narasimhulu Maistri ILR 25 MAD 149 Bhashyam Ayyanger, J. made the following pertinent observations about the nature of the institution and its incidents at p. 154:

 “The Mitakshara doctrine of joint family property is founded upon the existence of an undivided family, as a corporate body (Gan Savant Bal Savant v. Narayan Dhond Savant), (I.L.R. 7 Bom 467 at p. 471) and Mayne's Hindu Law and Usage, 6th edition, paragraph 270 and the possession of property by such corporate body. The first requisite therefore is the family unit; and the possession by it of property is the second requisite. For the present purpose female members of the family may be left out of consideration and the conception of a Hindu family is a common male ancestor with his lineal descendants in the male line and so long as that family is in its normal condition viz. the undivided state-it forms a corporate body Such corporate body, with its heritage, is purely a creature of law and cannot be created by act of parties, save in so far that, by adoption, a stranger may be affiliated as a member of that corporate family”.

 Adverting to the nature of the property owned by such a family, learned Judge proceeded to state at p. 155: “As regards the property of such family, the 'unobstructed heritage' devolving on such family, with its accretions, is owned by the family as a corporate body, and one or more branches of that family, each forming a corporate body within a larger corporate body, may possess separate 'unobstructed heritage' which, with its accretions, may be exclusively owned by such branch as a corporate body."

This statement of law has been approved by the Supreme Court in Bhagwan Dayal vs. Mst. Reoti Devi, [1962] 3 SCR 440 at page 477 Managing Member and His Powers:

In a Hindu family, the karta or manager occupies a unique position. It is not as if anybody could become manager of a joint Hindu family. “As a general rule, the father of a family, if alive, and in his absence the senior member of the family, is alone entitled to manage the joint family property.” The manager occupies a position superior to other members. He has greater rights and duties. He must look after the family interests. He is entitled to possession of the entire joint estate. He is also entitled to manage the family properties. In other words, the actual possession and management of the joint family property must vest in him. He may consult the members of the family and if necessary take their consent to his action but he is not answerable to every one of them.

The legal position of karta or manager has been succinctly summarized in the Mayne's Hindu Law (12th Ed. para 318) thus:

318. Manager's Legal position:

“The position of a karta or manager is sui generis; the relation between him and the other members of the family is not that of principal and agent, or of partners. It is more like that of a trustee and cestui que trust. But the fiduciary relationship does not involve all the duties which are imposed upon trustees.”

The managing member or karta has not only the power to manage but also power to alienate joint family property. The alienation may be either for family necessity or for the benefit of the estate. Such alienation would bind the interests of all the undivided members of the family whether they are adults or minors. The oft quoted decision in this aspect is that of the Privy Council in Hanuman Parshad vs. Mt. Babooee, [1856] 6 MIA 393. There it was observed at p. 423:

(1) The power of the manager for an infant heir to charge an estate not his own is, under the Hindu law, a limited and qualified power. It can only be exercised rightly in case of need, or for the benefit of the estate. This case was that of a mother, managing as guardian for an infant heir. A father who happens to be the manager of an undivided Hindu family certainly has greater powers to which I will refer a little later. Any other manager however, is not having anything less than those stated in the said case. Therefore, it has been repeatedly held that the principles laid down in that case apply equally to a father or other coparcener who manages the joint family estate.

 Remedies against alienations:

Although the power of disposition of joint family property has been conceded to the manager of joint Hindu family for the reasons aforesaid, the law raises no presumption as to the validity of his transactions. His acts could be questioned in the Courts of law. The other members of the family have a right to have the transaction declared void, if not justified. When alienation is challenged as being unjustified or illegal it would be for the alienee to prove that there was legal necessity in fact or that he made proper and bonafide enquiry as to the existence of such necessity. It would be for the alienee to prove that he did all that was reasonable to satisfy himself as to the existence of such necessity. If the alienation is found to be unjustified, then it would be declared void. Such alienations would be void except to the extent of manager's share in Madras, Bombay and Central Provinces. The purchaser could get only the manager's share. But in other provinces, the purchaser would not get even that much. The entire alienation would be void. [Mayne's Hindu Law 11th ed. para 396]. In the light of these principles, I may now examine the correctness of the contentions urged in this appeal. The submissions proceeded firstly on the premise that a coparcener has as much interest as that of karta in the coparcenary property. Second, the right of coparcener in respect of his share in the ancestral property would remain unimpaired, if the alienation is not for legal necessity or for the benefit of the estate. When these two rights are preserved to a coparcener, why should he not prevent the Karta from dissipating the ancestral property by moving the Court? Why should he vainly wait till the purchaser gets title to the property? This appears to be the line of reasoning adopted.

 I do not think that these submissions are sound. It is true that a coparcener takes by birth an interest in the ancestral property, but he is not entitled to separate possession of the coparcenary estate. His rights are not independent of the control of the karta. It would be for the karta to consider the actual pressure on the joint family estate. It would be for him to foresee the danger to be averted. And it would be for him to examine as to how best the joint family estate could be beneficially put into use to subserve the interests of the family. A coparcener cannot interfere in these acts of management. Apart from that, a father-karta in addition to the aforesaid powers of alienation has also the special power to sell or mortgage ancestral property to discharge his antecedent debt which is not tainted with immorality. If there is no such need or benefit, the purchaser takes risk and the right and interest of coparcener will remain unimpaired in the alienated property. No doubt the law confers a right on the coparcener to challenge the alienation made by karta, but that right is not inclusive of the right to obstruct alienation. Nor the right to obstruct alienation could be considered as incidental to the right to challenge the alienation. These are two distinct rights. One is the right to claim a share in the joint family estate free from unnecessary and unwanted encumbrance. The other is a right to interfere with the act of management of the joint family affairs. The coparcener cannot claim the latter right and indeed, he is not entitled for it. Therefore, he cannot move the court to grant relief by injunction restraining the karta from alienating the coparcenary property.

There is one more difficulty for the sustainability of the suit for injunction with which we are concerned. Temporary injunction can be granted under sub section (l) of Section 37 of the Specific Relief Act, 1963. It is regulated by the Code of Civil Procedure, 1908. A decree for perpetual injunction is made under sub section (2) of Section 37. Such an injunction can be granted upon the merits of the suit. The injunction would be to restrain the defendant perpetually from the commission of an act, which would be contrary to the rights of the plaintiff Section 38 of the Specific Relief Act governs the grant of perpetual injunction and sub section 3 thereof, reads:

“When the defendant invades or threatens to invade the plaintiff's right to, or enjoyment of, property, the Court may grant a perpetual injunction in the following cases, namely:

(a) Where the defendant is trustee of the property for the plaintiff;

(b) Where there exists no standard for ascertaining the actual damage caused or likely to be caused, by the invasion;

(c) Where the invasion is such that compensation in money would not afford adequate relief;

(d) Where the injunction is necessary to prevent a multiplicity of judicial proceedings".

The provisions of Section 38 have to be read along with section 41. Section 41 provides that an injunction cannot be granted in the cases falling under clauses (a) to (j). Clause (h) thereunder provides that an injunction cannot be granted when a party could obtain an efficacious relief by any other usual mode of proceeding (except in case of breach of trust). Coparcener has adequate remedy to impeach the alienation made by the karta. He cannot, therefore, move the Court for an injunction restraining the karta from alienating the coparcenary property. It seems to me that the decision of the Punjab & Haryana High Court in Jujhar Singh v. Giani Talok Singh, [1986 PLJ 346 has correctly laid down the law. There it was observed at page 348:

 “If it is held that such a suit would be competent the result would be that each time the manager or the karta wants to sell property, the coparcener would file a suit which may take number of years for its disposal. The legal necessity or the purpose of the proposed sale which may be of pressing and urgent nature would in most cases be frustrated by the time the suit is disposed of. Legally speaking unless the alienation in fact is completed there would be no cause of action for any coparcener to maintain a suit because the right is only to challenge the alienation made and there is no right recognized in law to maintain a suit to prevent the proposed sale. The principle that an injunction can be granted for preventing waste by a manager or karta obviously would not be applicable to such a suit because the proposed alienation for an alleged need or the benefit of the estate cannot be said to be an act of waste by any stretch of reasoning. We are, therefore, of the considered view that a coparcener has no right to maintain a suit for permanent injunction restraining the manager or the karta from alienating the coparcenary property and his right is only to challenge the same and to recover the property after it has come into being.”

Supreme Court dismissed the appeal.

What, if the purchasers bought the shares of some coparceners and other coparceners claiming partition?

It is settled law[1] in Madras and Bombay that a purchaser for value acquires the interest of his vendor, that is a right to a partition, and a right on partition to the share to which his vendor would have been entitled, but without partition he cannot acquire a right to any specific property or to a specific share. He is not entitled to possession, his right in that respects being the same as the right of a purchaser at a sale in execution of a decree.

The learned Author further says that the Judicial Committee has recognized this to be the law applicable in Madras and Bombay.

19. In 'Introduction to Modern Hindu Law', by J. Duncan M. Derrett - the learned Author has dealt with the subject at pages 303 and 304 and has stated that the law declared by the Madras and Andhra Pradesh High Court is the more attractive rule of limitation. The relevant passage reads thus:

We have seen that in South India the coparcener or owner of a coparcenary interest can create an equity in favour of an alienee against the whole family which can be worked out by the alienee stepping into the shoes of his alienor in a general partition of the joint family property. There is, therefore, no question of an actual transfer of an identifiable object, for the coparcener has no right to claim exclusive ownership of any object however trifling unless the manager, acting within his powers, confers this privilege upon him, or all the coparceners do the like. The alienee is not entitled to be put into possession of his purchase, he does not become a tenant-in -common with the coparceners, etc., nor does the transaction substitute him for his alienor in any respect whatever. If the coparceners put him into possession of the property, however, it is not possible for them to eject him, but he is liable to be ejected at the suit of minors or owners of coparcenary interests who did not authorize or participate in the act of putting him into possession. A rule confined to Maharashtra and Gujarat, that an alienee once put into possession cannot be ousted pending a partition suit and may hold as if he were a tenant-in -common with the coparceners, etc., is now supported by stare decisis only and appears to have been based on the special relationship of the alienee to the alienor in that very case as well as his long possession.

The alienee must pursue his remedy against the joint family within the period allowed by the Limitation Act. There is a difference of opinion both as to the moment when his cause of action arises and as to the period of time which may run against him. The Bombay High Court has held that the cause of action arises at the alienation (at the earlier) or on the death of the alienor, and, in the view of this High Court, there being no period specifically allotted by the Act the residual article (Article 120) applies and the alienee has only six years in which to sue for partition. If however the alienor was already separated in status and the property had remained undivided notwithstanding the severance, Article 144 applies and he must file his suit within twelve years from the date on which his title is actually denied. A more attractive rule is in force in Madras and Andhra Pradesh. There the view is taken that the alienee's cause of action arises at the time of the creating of the equity itself, that is, when he gives value to the coparcener- alienor, except in the rare cases where the coparceners put him into possession of the joint-family property, and that since his demand for partition is in substance a demand for possession of property (a view the Bombay High Court does not take) the appropriate articles of the Limitation Act are in every case those which relate to recovery of possession (Article 49 (it seems), and 144). Thus in all mortgages and sales of immovable property the period is twelve years, and it runs from the time when consideration passes.

In 'Hindu Law: Principles and Precedents' by N.R. Raghavachariar, 8th Edition (1987), at page 339, the learned author says:

Where the undivided interest of a coparcener has validly passed to a stranger either by operation of law as on the insolvency of a coparcener or by purchase either in execution of a decree or by private contract, he is entitled to claim a partition as against the other coparceners and to enforce it by a suit both during and after the lifetime of that coparcener.

Little down, the learned Author further says thus:

Such an alienee of an unascertained share in a joint family property cannot claim mesne profits, nor can he insist upon the possession of any definite piece of property. His remedy is to have that share and interest ascertained by instituting a suit for general partition in which the whole of the joint family property should be included and all the necessary parties joined. He can sue for a general partition ignoring any private partition effected between the coparceners. In such a suit he may also pray for allotment to his alienor the items which he has purchased.

Mulla on the 'Principles of Hindu Law' 15th Edition (1982), at page 348 deals with the right of a purchaser of an undivided interest from a coparcener. The learned Author says thus:

The purchaser of the undivided interest of a coparcener in a specific property-

(i) at a private sale in execution in West Bengal and Uttar Pradesh, or

(ii) at a private sale or a sale in execution in Madras, does not acquire a right to joint possession with the other coparceners. Such a purchaser acquires merely the right to compel a partition which the coparcener whose interest he has purchased might have compelled, had he been so minded, before the sale of his interest took place. That right can only be enforced by a suit for a general partition to which all the coparceners must be joined as parties. The purchaser may in such a suit ask the court to allot to his vendor the specific property sold to him, and the court may allot that property to him if the interest of the other coparceners will not be prejudiced thereby.

S.V. Gupte on 'Hindu Law' - 3rd Edition (1981) (Volume 1), at pages 356 and 357 says thus:

It is well established that a purchaser - whether of the whole or any portion of the joint family property and whether at a sale in execution of a decree, in insolvency or by a voluntary transfer -may claim partition of the joint family property. The equitable right to sue for partition which is available to an alienee from a coparcener flows from the purchase made by him for valuable consideration. By such purchase, an alienee does not acquire any right in a specific property belonging to the coparcenary, but acquires the equitable right to step into the shoes of the alienating coparcener and sue for partition in the same way in which that coparcener could.

At page 392 of the same book, the learned Author deals with suits by purchasers and says that there is no distinction between an auction purchaser and a private purchaser. The learned Author has not given his own views as to the starting point of limitation, though he has noted the differences of opinion among the various High Courts in that regard.

In Mayne's 'Hindu Law and Usage' - 13th Edition (1991), at page 689, the learned Author deals with right of purchasers under Mitakshara Law. The learned Author says that under Mitakshara law, no member has a right, without express agreement, to say that any specific portion is exclusively his. Consequently, the purchaser at a court auction cannot claim to be put into possession of any definite piece of property. Accordingly, the Judicial Committee held that the proper decree to be passed in a suit in which the purchaser has not obtained possession would be an order declaring that the purchaser acquired the undivided share of the judgment- debtor in the property with such power of ascertaining the extent of such share by means of a partition as the judgment- debtor possessed in his lifetime and confirming the possession of the other coparceners subject to such proceedings to enforce his rights as the purchaser might take. And where the purchaser has obtained possession they held that the plaintiff coparcener should obtain possession of the whole of the family property with a declaration that the purchaser had acquired the interest of the co-sharer and was entitled to take proceedings to have that interest ascertained by partition. Regarding the equitable rights of an alienee, the learned Author says thus:

Where the transfer is of an undivided interest in the whole of the family property the transferee will get whatever may be allotted to the transferor’s share in a suit for partition. A coparcener may alienate either his undivided share in the whole of the family property or His undivided share in certain specific family property or the whole of a specific item of the family property. In all these cases, the alienee does not acquire an interest in the property so as to become a tenant-in -common with the members of the family entitled to possession but only equity to stand in his vendor's shoes and to work out his right by means of a partition. The vendee's suit to enforce the sale by partition is not technically a suit for partition in the sense of the Mitakshara Law: and the decree which he may obtain enforcing the transfer, either in whole or in part, by a partition of the family property will not by itself break up the joint ownership of the members of the family in the remaining property nor the corporate character of the family. In dividing the family properties the court will, no doubt, set apart for the alienation coparcener's share the property alienated if that can be done without any injustice to the other coparceners and such property, if it is so set apart, may be given to the transferee of the interest of such coparcener. But this is only equity and the alienee is not, as of right, entitled to have the property so allotted. If such property is not so set apart, then the alienee would be entitled to recover that property which was allotted to his vendor for his share, in substitution for the property that was alienated in his favour.