A Madras High Court Bench of Justice Krishnan Ramasamy has clarified that under the Tamil Nadu Protection of Interest of Depositors (In Financial Establishment) Act, 1997, apart from the provision for attachment and sale of properties, there is no provision prohibiting third-parties from agitating and adjudicating their claims before the appropriate forum.

Counsel KV Ananthakrushnan appeared for the Petitioners, while Counsel K Mukund Rao appeared for the Respondents.

In this case, the petitioner lent the respondent money through a loan agreement and promissory note. The respondent ran a company called Jalagandeswara Auto Finance. However, the respondent failed to return the said amount as agreed by him in terms of the loan agreement. Subsequently, the petitioner invoked the arbitration clause in the loan agreement, and the arbitrator passed an order. However, the respondents challenged the same, and the Court set aside the award while granting liberty to the petitioner to initiate a fresh arbitration proceeding.

Thereafter, a notice under Section 21 of the Act was issued to the respondents and the arbitration proceedings were commenced. The respondents also participated and filed a memo wherein they stated that since the nomination of the arbitrator is against the law laid down by the Apex Court in the case of Perkins Eastman Architects DPC Vs. HSCC, the appointment of the arbitrator is non-est in law. At the next proceedings, the petitioner submitted that he would file a petition under Section 11 of the Act before the High Court Madras for the appointment of a neutral arbitrator.

On perusal of the TNPID Act, the Court observed that "The TNPID Act would apply only if there is any default in making the payment to the depositors. Based on the complaint, the proceedings can be initiated before the Special Court. Upon complaint registered by the Competent Authority, the Competent Authority is also empowered to attach the properties by virtue of the Government Order. This is what happened in the case of M/s.Jalagandeswara Auto Finance, which was represented by the sole Propreitor Mr.Siva, who is the first respondent".

Further, the Court also observed that "if any third party transaction is made by the first respondent, apart from the provision for attachment and sale of properties under Section 3 of TNPID Act, there is no provision prohibiting the petitioner to agitate and adjudicate their claims before the appropriate forum. Further, the claim of the petitioner is independent one. It is nothing to do with the Jalagandeswara Auto Finance. The first respondent had entered into agreement with the petitioner in his individual capacity."

By extension of the same, the Court held that "Even as far as the mortgaged property is concerned, the interest of the petitioner can be proved before the Special Court. Therefore, I am of the considered view that the Special Court will not have power to adjudicate the independent claim of the petitioner, since the said claim is no way connected with the M/s.Jalagandeswara Auto Finance. Hence, the claim of the petitioner has to be adjudicated independently. Therefore, this Court feels that since the present dispute is arising out of loan agreement dated 19.01.2013, in terms of Clause 17 of the agreement, the present dispute can be arbitrable and therefore, I am inclined to appoint an Arbitrator."

The Court also left it open to the parties to seek other reliefs under the provisions of the Arbitration and Conciliation Act 1996 before the Arbitrator. No orders as to costs.

Cause Title: M/s.Shriram City Union Finance Limited v. Siva & Anr.

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