Safiya Malik

The High Court of Bombay Single Bench of Justice Somasekhar Sundaresan held that a valid and subsisting arbitration agreement existed between the parties. Consequently, the Court directed that the disputes and differences arising from the agreement be referred to arbitration. A Sole Arbitrator was appointed to adjudicate the matter, and specific procedural steps were outlined to facilitate the arbitration process. The parties were instructed to appear before the arbitrator, provide contact details, and comply with communication and scheduling requirements. The arbitrator was requested to issue a statutory disclosure, and the arbitral costs were directed to be shared equally by both parties, subject to final determination in the award. A request to stay the appointment order was declined, and the Court clarified that all issues on merits remained open for adjudication before the arbitral tribunal

The Applicants, Tata Capital Limited, initiated proceedings under Section 11 of the Arbitration and Conciliation Act, 1996, to seek the appointment of an arbitrator for resolving disputes with Respondents Vijay Devij Aiya and another, pertaining to two financial agreements: a loan agreement dated January 31, 2016, and a top-up loan agreement dated October 31, 2017. These agreements collectively incorporated Clause 12.18, which provided for dispute resolution through arbitration, following failed negotiations or conciliatory efforts.

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Clause 12.18 included stipulations for the arbitration to take place in Chennai, Delhi, or Mumbai, in accordance with the Arbitration and Conciliation Act, 1996. The arbitration clause permitted TCSFL (Tata Capital subsidiary) to unilaterally appoint an arbitrator. Additionally, it stated that if TCSFL became subject to the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), or the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (DRT Act), it could opt to terminate the arbitration proceedings.

The Respondents contested the applications on three principal grounds. First, they cited a judgment of the Division Bench of the Delhi High Court in Tata Capital Housing Finance Ltd. v. Shri Chand Construction and Apartments Pvt. Ltd., which held a similar arbitration clause invalid due to its lack of mutuality. The Respondents argued that the clause granted a one-sided opt-out right to the lender without extending the same to the borrower, rendering the agreement void.

Second, it was submitted that the Applicant had already chosen to proceed under the SARFAESI Act and had taken steps toward enforcement under that regime. The Respondents contended that such an election precluded the Applicant from invoking arbitration, amounting to a waiver of the arbitration right.

Third, the Respondents stated that arbitration had already been initiated in 2018, wherein Tata Capital had unilaterally appointed an arbitrator. According to the Respondents, the appointed arbitrator’s mandate had expired in 2019 without any application filed under Section 29-A of the Arbitration and Conciliation Act to extend it. They asserted that the original proceedings had thereby lapsed, and could not be reinstated afresh.

The Applicant’s response to the objections was based on jurisprudence from the Supreme Court in MD Frozen Foods Export Pvt. Ltd. v. Hero Fincorp Ltd., wherein the Court upheld the simultaneous pursuit of arbitration and enforcement under the SARFAESI Act. The Applicant asserted that resort to SARFAESI remedies did not negate the viability or subsistence of the arbitration clause.

Justice Somasekhar Sundaresan undertook a detailed analysis of the validity and enforceability of the arbitration clause. The Court stated:

"At the threshold, the provision contains an unequivocal agreement between the parties to resolve their disputes and differences by reference to arbitration in Mumbai."

The Judge acknowledged that the clause included a provision for unilateral appointment of an arbitrator by the lender (TCSFL), which conflicted with the fundamental requirement for impartial and independent adjudication. However, the Court noted that:

"The Applicant fairly states that in view of this element in the provision; he would leave it to this Court to appoint an arbitrator."

Regarding the objection on mutuality, the Court examined the Delhi High Court’s Division Bench judgement in the Tata Capital case. Justice Sundaresan recorded:

"With the deepest respect for the Learned Division Bench of the Delhi High Court, the judgement on the absence of mutuality rendering the arbitration agreement to be illegal has to be read in this context and not in absolute terms."

The Court examined the factual matrix of the Tata Capital case, noting that it involved claims by a borrower against a lender for failure to return title deeds after loan repayment. In that case, the lender initially participated in the civil litigation process before seeking to invoke arbitration.

Justice Sundaresan observed: "Another means of viewing the matter could be that the lender having filed and won an appeal to secure its right to file a written statement, the lender had waived the right to arbitration."

On the invocation of SARFAESI remedies, the Court cited the Supreme Court’s findings in MD Frozen Foods: "The mere fact that the Applicant initiated proceedings under the SARFAESI Act would not bring to an end the arbitration agreement."

Addressing the 2018 arbitration, the Court remarked:

"It is common ground that such arbitration was by a unilaterally appointed arbitrator and therefore, in my opinion, whether such an arbitrator had the power to grant leave to initiate arbitration afresh is moot."

"What would follow is that the lapsing of the mandate was the mandate of an arbitral tribunal that was non est in the eyes of law."

The Court also stated that under Section 11(6A) of the Act, the scope of judicial scrutiny is limited to verifying the existence of a valid arbitration agreement: "Even a question of existential substance is a matter that falls squarely in the domain of the arbitral tribunal, in view of Section 16 of the Act."

In these circumstances, both these Applications are hereby finally disposed of, in terms of the following order:

Mr. Sandeep H. Parikh, a learned advocate of this Court is hereby appointed as the Sole Arbitrator to adjudicate upon the disputes and differences between the parties arising out of and in connection with the Agreement referred to above.

A copy of this Order will be communicated to the Learned Sole Arbitrator by the Advocates for the Applicant within a period of one week from the date on which this order is uploaded on the website of this Court. The Applicant shall provide the contact and communication particulars of the parties to the Arbitral Tribunal along with a copy of this Order.

The Learned Sole Arbitrator is requested to forward the statutory Statement of Disclosure under Section 11(8) read with Section 12(1) of the Act to the parties within a period of two weeks from receipt of a copy of this Order.

The parties shall appear before the Learned Sole Arbitrator on such date and at such place as indicated, to obtain appropriate directions with regard to conduct of the arbitration including fixing a schedule for pleadings, examination of witnesses, if any, schedule of hearings etc. At such meeting, the parties shall provide a valid and functional email address along with mobile and landline numbers of the respective Advocates of the parties to the Arbitral Tribunal. Communications to such email addresses shall constitute valid service of correspondence in connection with the arbitration.

All arbitral costs and fees of the Arbitral Tribunal shall be borne by the parties equally in the first instance, and shall be subject to any final Award that may be passed by the Tribunal in relation to costs.

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Needless to say, nothing contained in this order is an expression of an opinion on merits of the matter or the relative strength of the parties. All issues on merits are expressly kept open to be agitated before the arbitral tribunal appointed hereby.

Learned Counsel for the Respondent seeks a stay of this order appointing the arbitrator. For the reasons already recorded in the judgement, no case is made out to stay such an order since the interest of the Respondent are well protected.

Advocates Representing the Parties:

For the Petitioners: Mr. Nikhil Mehta, Advocate, instructed by KMC Legal Ventures Advocates

For the Respondents: Mr. Shanay Shah, Advocate, along with Mr. Hemal Ganatra, Advocate, instructed by Hemal Ganatra, Advocates

Case Title: Tata Capital Limited vs. Vijay Devij Aiya & Anr.

Neutral Citation: 2025: BHC-OS:6716

Case Number: COMMERCIAL ARBITRATION APPLICATION NO.237 OF 2024 WITH COMMERCIAL ARBITRATION APPLICATION NO.243 OF 2024

Bench: Justice Somasekhar Sundaresan

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