Acts and Sections Discussed:

• Arbitration and Conciliation Act, 1996, particularly Section 11 (Appointment of Arbitrators)
• Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), including Section 13 (Procedure for Enforcement) and Section 34 (Bar on Jurisdiction)
• Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act)
• Relevant case law: Vidya Drolia and Others vs. Durga Trading Corporation, NTPC Limited vs. SPML Infra Limited, and Naresh J. Doshi and Others vs. RBI

1. Background of the Dispute:

In 2015, Respondent No.1, Priyanka Communications, approached Tata Capital Limited for financing. The two parties entered into various loan agreements, including a Working Capital Demand Loan (WCDL) for ₹30 crores. This agreement was revised multiple times. Eventually, the Respondents requested and received a one-time temporary limit of ₹5.6 crores in 2019, with the loan to be repaid within 90 days. The loan was not repaid, leading Tata Capital to invoke arbitration under the Arbitration Clause of the Sanction Letter.

2. Tata Capital’s Case:

Tata Capital sought the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, claiming a valid arbitration agreement existed. They argued that all disputes arising from the loan facilities were subject to arbitration as outlined in the Sanction Letter.

3. Respondents’ Objections:

The Respondents opposed arbitration, arguing:

• The dispute was non-arbitrable as proceedings had already been initiated under the SARFAESI Act for loan recovery.
• Under Section 34 of the SARFAESI Act, once statutory remedies are invoked, arbitration becomes invalid.
• The dispute also fell under the jurisdiction of the RDDB Act, which provides an exclusive remedy for debt recovery by financial institutions.
• They claimed that Tata Capital had waived its right to arbitration by filing a Summary Suit in court.

4. Legal Arguments and Jurisdictional Issues:

The case highlighted conflicting positions on whether disputes involving SARFAESI Act proceedings could also be arbitrated. Tata Capital argued that the SARFAESI Act and arbitration could operate simultaneously, citing precedents such as M.D. Frozen Foods Exports Pvt. Ltd. vs. Hero Fincorp Ltd. However, the Respondents contended that the statutory remedies under the SARFAESI Act took precedence, making arbitration inappropriate.

5. Court’s Consideration:

The Bombay High Court had to assess whether it had jurisdiction to appoint an arbitrator, considering the SARFAESI Act and the RDDB Act's provisions. According to Section 11(6A) of the Arbitration Act, the court is limited to determining the existence of an arbitration agreement. Precedents from the Supreme Court in cases like Vidya Drolia and NTPC were used to argue that arbitration could only be refused if it was clear that the dispute was "manifestly non-arbitrable."

• Tata Capital requested the court to appoint an arbitrator under the terms of the Sanction Letter.
• Respondents argued that arbitration was non-arbitrable because of parallel SARFAESI Act proceedings and the exclusive jurisdiction of the Debt Recovery Tribunal under the RDDB Act.
• The court must determine whether statutory remedies oust the arbitration agreement and if the case should proceed to arbitration despite ongoing SARFAESI actions.

Ratio Decidendi:

The core legal issue revolves around whether arbitration can coexist with statutory debt recovery mechanisms under the SARFAESI and RDDB Acts. The court must navigate between upholding the contractual right to arbitration and respecting statutory remedies designed for financial institutions, balancing contractual autonomy and legislative mandates.

Subjects:

• Arbitration
• SARFAESI Act
• Debt Recovery
• Financial Dispute
• Loan Agreement
• Section 11 Arbitration