Case Note & Summary
The applicant, Tata Capital Limited, filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator to resolve disputes arising from a Sanction Letter dated 19th August 2019, which contained an arbitration clause. The applicant had sanctioned a one-time temporary limit facility of Rs.5,60,00,000 to the first respondent, Priyanka Communications (India) Pvt. Ltd., and the second and third respondents were personal guarantors. The loan was disbursed but not repaid. The applicant had previously initiated proceedings under the SARFAESI Act and filed a summary suit for recovery of larger amounts. The respondents opposed the application, arguing that the disputes were non-arbitrable because the applicant had invoked SARFAESI Act remedies, which bar arbitration under Section 34 of that Act, and that the RDDB Act confers exclusive jurisdiction on the Debt Recovery Tribunal (DRT). The court analyzed the provisions and held that Section 34 of the SARFAESI Act only bars civil courts, not arbitration, and Section 18 of the RDDB Act similarly bars civil courts but not arbitration. The court also noted that the arbitration agreement in the Sanction Letter was separate and independent, and the applicant was entitled to refer disputes under that specific facility to arbitration. The court rejected the argument of artificial bifurcation, as the Sanction Letter constituted a distinct agreement. Consequently, the court allowed the application and appointed a sole arbitrator to adjudicate the disputes.
Headnote
A) Arbitration Law - Section 11 Application - Maintainability - Arbitration and Conciliation Act, 1996, Section 11 - The court held that the existence of an arbitration agreement in the Sanction Letter dated 19th August 2019 is valid and binding, and the disputes arising thereunder are arbitrable despite the applicant having initiated proceedings under the SARFAESI Act and the RDDB Act. The court rejected the respondents' contention that the application is barred under Section 34 of the SARFAESI Act or Section 18 of the RDDB Act, as the arbitration agreement is independent and the remedies are not mutually exclusive. (Paras 1-44)
B) Arbitration Law - Non-Arbitrability - Statutory Bar - SARFAESI Act, 2002, Section 34; RDDB Act, 1993, Section 18 - The court held that Section 34 of the SARFAESI Act does not bar arbitration proceedings as it only bars civil courts from entertaining suits in respect of matters the DRT or DRAT is empowered to determine, and arbitration is not a civil court. Similarly, Section 18 of the RDDB Act does not oust arbitration as it only bars civil courts from entertaining suits for debts recoverable by DRT, but arbitration is a private dispute resolution mechanism not covered by the term 'civil court'. (Paras 9-44)
C) Arbitration Law - Bifurcation of Loan Amounts - Separate Arbitration Agreement - The court held that the applicant's claim under the Sanction Letter dated 19th August 2019 is distinct from the consortium loans, and the arbitration agreement in that Sanction Letter is separate and enforceable. The applicant is entitled to refer only the disputes under that Sanction Letter to arbitration, and the respondents' argument of artificial bifurcation is without merit. (Paras 2-44)
Issue of Consideration
Whether an application under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator is maintainable when the applicant has also initiated proceedings under the SARFAESI Act and the RDDB Act, and whether the disputes are arbitrable.
Final Decision
The court allowed the application and appointed a sole arbitrator to adjudicate the disputes between the parties arising out of the Sanction Letter dated 19th August 2019.
Law Points
- Arbitration agreement survives invocation of SARFAESI Act remedies
- Section 11 application maintainable despite Section 34 SARFAESI bar
- Section 18 RDDB Act does not oust arbitration
- bifurcation of loan amounts permissible if separate agreement exists
Case Details
2024 LawText (BOM) (10) 2520
Commercial Arbitration Application No.168 of 2023
Mr.Rohan Savant, Mr.Sachin Chandarana, Mr.Aagam Mehta, Mr.Amol Rasal for Applicant; Mr.Pankaj Sawant, Sr.Counsel, Mr.Jehaan Mehta, Mr.Rehmat Lokhandwala, Mr.Hrishikesh Nadkarni, Mr.Premlal Krishnan for Respondents
Priyanka Communications (India) Pvt. Ltd. And Ors.
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Nature of Litigation
Commercial arbitration application under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator.
Remedy Sought
Applicant seeks appointment of an arbitrator to adjudicate disputes arising from a Sanction Letter dated 19th August 2019.
Filing Reason
Respondents failed to repay a one-time temporary limit facility of Rs.5,60,00,000 and refused to appoint an arbitrator after invocation of arbitration clause.
Previous Decisions
The court had earlier passed an order dated 12th March 2021 in a Section 9 petition granting interim reliefs, including a direction to deposit Rs.5,60,00,000 and disclosure of assets. A review petition was dismissed on 4th August 2021. The Supreme Court on 19th August 2021 recorded that the applicant would not press for execution of the order till next date.
Issues
Whether the disputes are non-arbitrable due to the bar under Section 34 of the SARFAESI Act?
Whether the application is barred under Section 18 of the RDDB Act?
Whether the applicant can bifurcate the loan amounts and refer only part of the disputes to arbitration?
Submissions/Arguments
Applicant: There is a valid arbitration agreement in the Sanction Letter dated 19th August 2019; disputes have arisen; the applicant invoked arbitration; the respondents refused to appoint an arbitrator; hence, an arbitrator should be appointed.
Respondents: The disputes are non-arbitrable because the applicant has initiated proceedings under the SARFAESI Act, which bars arbitration under Section 34; the RDDB Act confers exclusive jurisdiction on DRT under Section 18; the applicant cannot artificially bifurcate the loan amounts.
Ratio Decidendi
The existence of a valid arbitration agreement is sufficient for appointment of an arbitrator under Section 11 of the Act. The bar under Section 34 of the SARFAESI Act and Section 18 of the RDDB Act applies only to civil courts, not to arbitration. The applicant is entitled to refer disputes under a separate arbitration agreement to arbitration, even if other proceedings are pending.
Judgment Excerpts
Clause (k) of the said Sanction Letter contained an Arbitration Agreement between the parties and reads as follows: '(k) All disputes, differences or claims arising out of these presents or as to the construction, meaning or effect thereof or as to the rights and liabilities of the parties hereunder shall be settled by arbitration...'
Mr.Pankaj Sawant submitted that the present Application was expressly barred under Section 34 of the SARFAESI Act.
The court held that Section 34 of the SARFAESI Act does not bar arbitration proceedings as it only bars civil courts from entertaining suits in respect of matters the DRT or DRAT is empowered to determine, and arbitration is not a civil court.
Procedural History
The applicant filed a Section 9 petition in 2020, which was allowed on 12th March 2021. The respondents filed a review petition, which was dismissed on 4th August 2021. The respondents then filed an SLP before the Supreme Court, which on 19th August 2021 recorded that the applicant would not press for execution of the order. The present Section 11 application was filed on 8th June 2021. The respondents filed an affidavit in reply on 11th September 2023. The court reserved judgment on 12th September 2024 and pronounced on 15th October 2024.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 11, Section 9
- Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: Section 13(2), Section 13(10), Section 14, Section 34
- Recovery of Debts due to Banks and Financial Institutions Act, 1993: Section 18
