Booz Allen & Hamilton Inc. V/S Sbi Home Finance Ltd. & Ors
Booz Allen & Hamilton Inc. V/S Sbi Home Finance Ltd. & Ors
Capstone Investment and Real Value Investment, both Respondents in this case and owners of
flats, had borrowed loans from SBI Home Finance, another Respondent, under two loan
agreements by securing the two flats in favour of SBI. The Appellant was permitted to use the
above two flats under leave and license agreements signed by Appellant, the respective flat
owners as well as SBI as confirming parties.
A tripartite deposit agreement was also entered into by Capstone and Real Value as one party,
Appellant as second party and SBI as third party. As per this agreement, Appellant was to pay the
flat owners a certain sum of money as refundable security deposit according to the terms and
conditions of the leave and license agreement and deposit agreement, and the three agreements
formed a single integral transaction. A part of the security deposit was paid directly to SBI towards
payment of loan taken by Capstone and Real Value. As a result, the loan due by Capstone was
cleared but the loan due by Real Value was outstanding. Capstone however became guarantor for
repayment of the amount due by Real Value and its flat was used as security.
FACTS
A notice of motion was taken out by SBI seeking interim relief, the
HC issued an order stating that Capstone shall continue to occupy
the first flat and garages but shall not create third party right or
interest of ay nature whatsoever and neither shall he hand over
possession of the said flat to Real Value or SBI till further orders.
Later, the appellant filed a detailed reply to the notice. It contended
that SBI had a contractual obligation towards the appellant, to which
Cpastone also contested the applicaton, denying the existence of any
mortgage or charge over the first flat.
The appellant however did not file its written statement in the
suit. He claimed that the settlement talks were held but did not
result into any settlement. So, in 2001, the appellant furnished a
notice praying that the parties to the suit be referred to
arbitration as provided in Clause 16 of the deposit agreement
and consequently the suit be dismissed.
ISSUES BEFORE THE COURT OFLAW
1) Whether or not the subject matter of the suit fell within the
arbitration clause of the deposit agreement?
2) Whether or not the subject matter of the suit is ‘arbitrable’,
that is capable of being adjudicated by a private forum
(Arbitral Tribunal) and whether the HC ought to had referred
the parties to the suit to arbitration under Section 8 of the Act??
3) Whether the applicant his first statement on the substance of
the dispute before filing the application under Section 8 of the
Act?
RATIO OF THE COURT
1. Yes. Clause 16 of the deposit agreement, which formed the arbitration clause provided for
arbitration to settle disputes with:
relating to creation of charge over shares and flats
disputes with respect to enforcement of the charge over the shares and flats and realization of sale
proceeds
application of the sale proceeds towards discharge of liability of Capstone and RV appliances to the
appellant.
Disputes relating to exercise of right of the appellant to continue to occuy the flats until the entire dues as
stated in Clause (9) and (10) of the deposit agreement are realised by the appellant.
The mortgage suit was filed by SBI for recovery of amounts due and delivery of vacant possession
of the mortgaged flat. All of the contested claims fall within the ambit of the arbitration clause
of the tripartite deposit agreement
Issue 2
The judgment in Booz Allen4 and the 246th Law Commission Report were referred to by Justice Sikri
on behalf of the Division Bench while discussing whether the present dispute was capable of
adjudication and settlement by arbitration. The order in Booz Allen held that only where the subject
matter of the dispute fell exclusively within the domain of courts, could the dispute said to be non-
arbitrable. In general, , a right in rem would not be arbitrable but a right in persona would be capable
of adjudication in private fora. The SC in Booz Allen and more recently in Vimal Kishor Shah5 have
outlined the following instances which would be outside the purview of arbitration:
Disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
Matrimonial disputes;
Guardianship matters;
Insolvency and winding up;
Testamentary matters;
Eviction or tenancy matters; and
Disputes inter se between trust, trustees, and beneficiaries.
HELD
1. The SC held that mere allegation of fraud simplicitor would not be a ground to nullify the
effect of an arbitration agreement between the parties. Only in those cases where the
courts, while dealing with Section 8 of the Act, find that there are very serious allegations
of fraud which make a clear case of criminal offence or where allegations of fraud are so
complicated that it becomes absolutely essential that such complex issues can be decided
only by a civil court on the appreciation of the voluminous evidence, should the court
avoid the arbitration agreement by dismissing a Section 8 application and proceed with
trying the suit on merits. The SC held that the allegations in this case were not so serious
that an arbitrator would be unable to rule on it and directed the parties to arbitration. To
save the time of parties, the SC also appointed an arbitrator for the present dispute.
2. The present case affected rights in rem created by the mortgage and so the dispute could
not be decided by an arbitrator. Thus, the Supreme Court ruled in the Respondent’s favour
and dismissed application made to it under Section 8 of the Act.