Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd.
Supreme Court of India, 15 April 2011, 2 judges
A suit to enforce a mortgage by sale is an action in rem that only a court may decide, so it cannot be referred to arbitration under Section 8 even though the parties agreed to arbitrate such disputes.
Facts
Two companies owning flats in Mumbai, mortgaged to SBI Home Finance, licensed them to the appellant. Under a tripartite deposit agreement the appellant paid a refundable security deposit of Rs. 6.5 crores, much of it used to repay the owners' loans, and clause 16 provided for arbitration of disputes on enforcement of the charge over the flats and the appellant's right to occupy until the deposit was refunded. When one owner's loan remained unpaid, SBI filed a mortgage suit in the Bombay High Court seeking sale of one flat and possession from the appellant. The appellant opposed interim relief and, about two years later, applied under Section 8 of the Arbitration and Conciliation Act, 1996 to refer the parties to arbitration. A single Judge dismissed the application on grounds of scope, submission to jurisdiction and delay.
Questions before the Court
- Does filing a reply to an application for interim relief amount to submitting the first statement on the substance of the dispute under Section 8?
- Can a Section 8 application be rejected only for delay when no written statement has been filed?
- Is a suit for enforcement of a mortgage by sale arbitrable?
What the Court held
- The suit fell within clause 16. A reply opposing interim relief such as an injunction or receiver is not a statement on the substance of the dispute, and mere lapse of time before the written statement, without conduct showing submission to the court's jurisdiction, does not defeat a Section 8 application.
- Under Section 8 the court seized of the suit must itself decide arbitrability and must refuse reference if the subject matter can be decided only by a public forum. Every civil or commercial dispute is in principle arbitrable unless excluded expressly or by necessary implication.
- Disputes on rights in personam are generally arbitrable; disputes on rights in rem are generally for courts, though subordinate rights in personam arising from rights in rem are arbitrable. Examples of non-arbitrable disputes include criminal offences, matrimonial and guardianship matters, insolvency and winding up, testamentary matters and statutory tenancy.
- A mortgage is a transfer of a right in rem and a suit for its enforcement by sale, which under Order 34 CPC affects third parties, must be tried by a court. Its issues cannot be split. The dismissal of the Section 8 application was upheld for these different reasons.
Why it matters
The judgment sets out the three facets of arbitrability and the distinction between rights in rem and in personam as the general test of what an arbitral tribunal may decide. It lists recognised categories of non-arbitrable disputes and holds mortgage enforcement suits non-arbitrable. It also explains when a defendant loses the right to seek reference under Section 8.
In the Court's words
Copied from the official judgment; each passage links to its page.
“Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to sub-ordinate rights in personam arising from rights in rem have always been considered to be arbitrable.”
“Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of arbitral tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the Legislature exclusively for public fora as a matter of public policy.”
“On the other hand, a mortgage is a transfer of a right in rem. A mortgage suit for sale of the mortgaged property is an action in rem, for enforcement of a right in rem. A suit on mortgage is not a mere suit for money. A suit for enforcement of a mortgage being the enforcement of a right in rem, will have to be decided by courts of law and not by arbitral tribunals.”
“But filing of a reply by a defendant, to an application for temporary injunction/attachment before judgment/appointment of Receiver, cannot be considered as submission of a statement on the substance of the dispute, as that is done to avoid an interim order being made against him.”
Provisions interpreted
Case and bench
- Parties
- Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd.
- Case
- Civil Appeal No. 5440 of 2002
- Decided
- 15 April 2011
- Bench
- R.V. Raveendran, J.M. Panchal
- Opinions
- Unanimous. Judgment delivered by R.V. Raveendran, J.
Questions on this case
2 questions in live Law Maker papers mention this case. Practise them with the landmark judgments questions.