Partly allowed

Mr.N.Anand Sai v. M/S.Galada Finance Limited

Madras HC20 Jun 2017OP/227/2012

Case brief

AI extract

What is this about?

In an original petition under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside an award, the High Court held that the guarantor was bound and could not unilaterally withdraw. The Court modified the award to direct the petitioner to be given credit for the vehicle sale consideration.

What did the court decide?

The original petition was dismissed, but the award was modified to give the petitioner credit for the vehicle sale consideration.

Mr.N.Anand Sai Vs M/S.Galada Finance Limited — Contract and Commercial Disputes | Madras HC (2017)

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IN THE HIGH COURT OF JUDICATURE AT MADRAS

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DATED 20.06.2017

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CORAM

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THE HON'BLE DR.JUSTICE ANITA SUMANTH

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ORIGINAL PETITION NO.227 OF 2012

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Mr. N. Anand Sai .. Petitioner
Versus
1. M/s. Galada Finance Limited,
represented by Mr. Naveen Galada
Old No.4, New No.7,
Shaffee Mohammed Road,
Thousand Lights,
Chennai 600 006.
2. Mr.K.S.Gowthaman,
Advocate/Arbitrator,
Flat No.A8, Plot No.102/A6,
New No.198/6, Rangarajapuram,
Main Road, Kodambakkam,
Chennai 600 016.
3. Mr.S.Mahesh,
S/o.Late Shanmugam,
New No.41, Nattu Pillayar Koil Street,
George Town, Chennai 600 001. .. Respondents
Original Petition filed under section 34 of the Arbitration and Conciliation Act,
1996 praying to set aside the award dated 15.12.2011 by the 2nd respondent/sole
Arbitrator and dismiss the claim petition filed by the 1st respondent.
For Petitioner : Mr.D. Nagesh Babu
For Respondents : Mr.M. Arunachalam

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http://www.judis.nic.in

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ORDER

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This challenge under section 34 of the Arbitration and Conciliation Act 1996

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(in short 'the Act') is against an award dated 15.12.2011 passed by the learned sole

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Arbitrator who is arrayed as the 2nd respondent before me.

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The brief facts are as follows:

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(i)The first respondent finance company (in short, the company) had extended

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hire purchase facility to the petitioner for purchase of a Honda City bearing

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temporary registration No.TN-22-PMP-0598, Engine No.L15-A700054 and Chassis

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No.MAKGM25278N000030, in terms of an Agreement dated 8.6.2010. The borrower

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was one S. Mahesh, the 3rd respondent herein residing at New No.41, Nattu Pilliar

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Koil Street, George Town, Chennai-1 and the petitioner was the Guarantor to the

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loan. The amount financed was a sum of Rs.7,50,000/- . The finance charges for the

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repayment facility of 36 months was a sum of Rs.3,48,750/- amounting in total to a

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sum of Rs.10,98,750/- repayable in 35 instalments of Rs.30,600/- each, the last instalment alone of a sum of Rs.27,750/-. The 1st instalment was payable on

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25.6.2010 and the last on 7.5.2013.

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(ii) The guarantor appears to have had a sudden change of heart and issued

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letter dated 30.6.2010 after having duly executed the agreement that he was http://www.judis.nic.in

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proposing to cancel the guarantee executed by him. The company vide its letter

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dated 3.7.2010 replied confirming that the guarantee executed by the petitioner would be duly binding on him and cannot be withdrawn unilaterally by the guarantor

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as and when he pleased. The company also proposed that the substitution of the guarantor would be possible only upon the identification of an alternate guarantor to

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take his place and till such time that was done he could not be relieved from his responsibilities as a guarantor.

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(iii)There were admitted defaults in the repayment of the loan. Proceedings for arbitration were initiated in accordance with clause 22(a) of the agreement between the parties and proceedings were conducted in C.P.No.KSG/12/2010. A claim was filed by the company, to which a counter was filed by the petitioner herein. The main contention raised in the counter is to the effect that he was induced to be a guarantor trusting the bonafides and the repayment capacity of the borrower. He submitted

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that upon realising that the borrower was incapable of settling the loan, he had sought to cancel his guarantee. This was however, not accepted by the company.

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He would submit that the case of the company that the vehicle had been abandoned

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and that substantial amounts had been spent on repairs was not true and even

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assuming the same, the amount ought to have been claimed from the Insurance

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http://www.judis.nic.in Company which had not been done.

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(iv) The company, for its part filed an affidavit in the course of arbitration to the

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effect that there had been gross irregularities committed by the borrower in purchase

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of the car. The disbursal of the loan amount was on the basis that the borrower

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would purchase a New Honda City Vehicle V - AT of the 2010 model from Capital

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Honda, Chennai. The borrower had also produced documentation to this effect.

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Thereafter not a single instalment had been paid and the cheques issued by the

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borrower towards monthly installments had been dishonoured by the Bank for want

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of funds. Even the registration formalities had not been completed with and only the

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temporary registration certificate had been produced. The aforesaid information had

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been brought to the notice of the borrower on 3.7.2010 requesting that the procedure

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be regularised forthwith.

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(v) In the meantime, the company was given to understand that the asset had

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been found abandoned and had been seized by the G-1, Vepery Police Station that

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registered a case in connection therewith. After necessary legal formalities the vehicle was re-posessed by the company and handed over to the dealer for repairs.

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It was only at this stage that the company even realised that the vehicle was only of

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the 2009 model and not 2010 model for which, finance facility had been extended.

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The company would allege in arbitration that the documents relating to the vehicles

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http://www.judis.nic.in had themselves been falsified by the dealer and the borrower in collusion with each

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other. However it is a mystery as to why no proceedings were initiated by the

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company against the dealer for its involvement in such fraudulent activities and the company had obviously not displayed due diligence in verifying the documents relating to the vehicle sold by the dealer to the borrower.

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(vi) Upon reference to arbitration, the sole arbitrator appointed in accordance

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with the hire purchase agreement, issued notice to the respondents being the borrower and the guarantor. The borrower was unrepresented and the guarantor initially appeared along with counsel and sought an adjournment. At request of the petitioner/guarantor the matter was adjourned to 8.3.2011. There being no sitting on the said date the matter was adjourned to 29.3.2011, when the petitioner appeared and sought time for filing counter. Paper publication was ordered against the borrower and the matter adjourned to 19.4.2011 when the petitioner sought further time for filing counter. Since there was no appearance for the borrower, he was set

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exparte and proceedings adjourned yet again at the request of the guarantor to 10.5.2011 when there was no appearance. Notice was issued to the guarantori and his counsel. On 7.6.2011, preliminary objections were filed by the Guarantor. Orders were passed on the preliminary objections on 21.6.2011 and the matter posted to 12.7.2011 for filing detailed counter and adjourned to 19.7.2011 when

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http://www.judis.nic.in counter was filed. Thereafter, adjournments were sought on various occassions for

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affording opportunity to the guarantor to file his proof affidavit till 8.11.2011. Since

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there were no appearances by the guarantor on several occasions,the matter was reserved for orders on 8.11.2011. However at request of the guarantor on 15.11.2011, the matter was re-opened and posted to 29.11.2011 when proof affidavit

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was confirmed by the guarantor and he was cross examined. The matter was

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thereafter posted on 13.12.2011 for oral submissions and since there was no representation, orders were reserved and passed on 15.12.2011 in favour of the company.

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The award records the aforesaid narration and Mr.D. Nagesh Babu for the petitioner and Mr.M. Arunachalam for the company, the arbitrator and the borrower being unrepresented, would have no quarrel with the narration of facts as above. The sole point put forth by the petitioner revolves around letter dated 30.6.2010

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whereby the petitioner seeks to withdraw his guarantee based on the information

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that he claims to have received post execution of the guarantee relating to the involvement of the borrower in illegal activities that led the petitioner to believe that he would not honour the agreement with the company. However, he would not dispute the position that the guarantor has actually executed the documents. In view of the admitted position that the agreement between the parties has been executed http://www.judis.nic.in by the guarantor, I am of the view that it binds him in full. Due diligence as regards

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the borrower and his capacity or otherwise to repay the loan ought to have been

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exercised by the guarantor prior to executing the hire purchase agreement dated 8.6.2010. Having admittedly executed the same, he cannot, as an afterthought, seek

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to wriggle out of the agreement unilaterally leaving the company high and dry. Letter

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dated 30.6.2010 would, in the light of the binding agreement dated 08.06.2010 cease

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to have any value or weight whatsoever. In the alternative, it was incumbent upon

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the petitioner to identify an alternate guarantor who would step into his shoes and

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take up the responsibilities undertaken by him under the hire purchase agreement.

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The award is confirmed to this extent.

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The petitioner has also made a request that the consideration from the sale

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of the vehicle be taken into account and given credit to that has been rejected by the

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arbitrator stating that no credit could be given, as the vehicle was in the custody of

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the company and not sold. The submission of the company before the arbitrator is,

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in fact, to the effect that the sale consideration of the vehicle, as and when sold, would be appropriated towards the contract. In these circumstances, I am of the

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view that the amount should be given credit to while making a demand on the

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guarantor, the petitioner herein.

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http://www.judis.nic.in

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DR.ANITA SUMANTH,J.

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The original petition is dismissed. However, due set off shall be given to the

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consideration obtained for the sale of the vehicle while making a demand upon the

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guarantor.
20.06.2017
Speaking/Non speaking order
Index: Yes/No
msr/sl
ORIGINAL PETITION NO.227 OF 2012

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http://www.judis.nic.in

Mr.N.Anand Sai v. M/S.Galada Finance Limited

Case brief

What is this about?

What did the court decide?

Mr.N.Anand Sai v. M/S.Galada Finance Limited

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

Case details

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