Safiya Malik

The High Court of Rajasthan, Single Bench of Justice Anoop Kumar Dhand held that a Section 11 petition under the Arbitration and Conciliation Act, 1996, is maintainable even without a formal notice invoking arbitration under Section 21 when the respondents are already aware of the dispute. The Court appointed former Acting Chief Justice Sabina as the sole arbitrator to resolve the loan-related dispute between petitioners Shekharchand Sacheti and Smt. Sudha Sacheti and S.M.F.G. India Home Finance Company Ltd. The Bench observed that the respondents were well aware of the controversy after they themselves sought referral to arbitration before the trial court, leading to the return of the petitioners’ plaint under Order VII Rule 10 of the CPC.

The dispute arose from a loan transaction between petitioners Shekharchand Sacheti and Smt. Sudha Sacheti and the respondent, S.M.F.G. India Home Finance Company Ltd. (formerly Fullerton India Home Finance Company Ltd.). The petitioners had mortgaged a portion of their property—measuring 6,318 square feet out of a total constructed area of 12,000 square feet—to secure the loan under an agreement executed on 23 January 2017. The agreement included an arbitration clause in Article 23 providing for resolution of disputes through arbitration.

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Following default in repayment, the respondent classified the petitioners’ loan account as a non-performing asset and initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The respondent took possession of the entire constructed area and later put it up for auction. A sale certificate for the property was issued in February 2024 in favor of a third party, leading the petitioners to file a securitisation application before the Debt Recovery Tribunal (DRT), Jaipur. Their application for interim relief was rejected.

In March 2024, the petitioners instituted a partition suit before the District Court at Ajmer, seeking division of the mortgaged 6,318 square feet from the remaining portion of the property. The respondent filed an application under Sections 8 and 5 of the Arbitration and Conciliation Act, 1996 (A&C Act), contending that the dispute was governed by the arbitration clause. Consequently, the trial court returned the plaint under Order VII Rule 10 of the Code of Civil Procedure for presentation before the competent forum.

Subsequently, the petitioners made a telephonic request to the respondent to appoint an arbitrator, which was not heeded. They then approached the Rajasthan High Court under Section 11 of the A&C Act seeking appointment of an arbitrator.

The petitioners argued that the arbitration clause was valid and applicable to the dispute and that prior notice under Section 21 of the A&C Act was unnecessary as the respondent was already aware of the dispute. The respondent opposed the application, contending that parallel arbitration was not maintainable due to pending SARFAESI proceedings before the DRT and that absence of a formal notice under Section 21 rendered the petition premature.

The Court examined the arguments in light of statutory provisions including Sections 7, 11, and 21 of the A&C Act, the SARFAESI Act, and relevant precedents cited by both parties. Ultimately, the Court found that the existence of a valid arbitration agreement was undisputed, that the respondent had prior knowledge of the dispute due to its own Section 8 application in the trial court, and that the arbitration petition was maintainable despite the absence of a formal notice under Section 21.

On the interplay between SARFAESI enforcement and arbitration, the Court cited the Supreme Court’s pronouncement stating in categorical terms that “SARFAESI proceedings are in the nature of enforcement proceedings, while arbitration is an adjudicatory process… SARFAESI proceedings and arbitration proceedings, thus, can go hand in hand.”

In relation to the scope of scrutiny at the Section 11 stage, the Court referred to the statutory scheme after the 2015 Amendment, noting that the referral court is confined to a prima facie examination of the existence of an arbitration agreement. The Court quoted that the jurisdiction under Section 11(6) is limited to examining whether an arbitration agreement exists—“nothing more, nothing less”—and that only a prima facie proof of existence is required, leaving substantive questions to the arbitral tribunal under Section 16. The Court further recorded that the pre-referral jurisdiction “is very narrow and inheres two inquiries”—existence/validity of the arbitration agreement and, secondarily, non-arbitrability—and that the tribunal is the preferred authority to determine non-arbitrability save for cases that are manifestly non-arbitrable on their face.

Turning to Section 21 notice, the Court discussed the purpose and effect of a valid notice invoking arbitration, including its relevance to limitation and the referral mechanism. The Court referred to binding authority explaining that the limitation period for a Section 11(6) application can commence only upon a valid invocation of arbitration and a failure or refusal by the other party to comply. However, the Court expressly addressed the facts at hand: it recorded that the respondents were not taken by surprise by the invocation of the arbitration clause before the High Court, since the applicants had earlier filed a partition suit; in that suit, the respondents themselves moved an application under Sections 8 and 5 of the 1996 Act asserting that the civil suit was not maintainable and that the matter must go to arbitration; the ADJ, Ajmer, returned the plaint under Order 7 Rule 10 CPC for presentation before the competent forum.

The Court further noted that an interim order under Section 9 of the 1996 Act had been passed against the respondents. In these circumstances, the Court stated that the respondents were well aware of the dispute and that, “under these peculiar circumstances, this application under Section 11 of the Act of 1996 is maintainable even without issuing a proper notice to the respondent under Section 21 of the Act of 1996 by the applicants.”

Applying the above legal position and record, the Court found that the arbitration agreement exists in Article 23 of the loan agreement, fulfilling Section 7 of the 1996 Act. It concluded that the respondents’ objections to invocation were without merit in a Section 11 proceeding, given the limited jurisdiction confined to the existence of the arbitration agreement and the possibility of parallel SARFAESI enforcement.

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The Court allowed the application and appointed Justice Sabina (Former Acting Chief Justice), High Court of Himachal Pradesh, as the Sole Arbitrator to adjudicate and resolve the dispute between the parties. The Court directed that the appointment is subject to a declaration under Section 12 of the 1996 Act concerning independence, impartiality, and ability to devote sufficient time to complete the proceedings within the prescribed period. The Court specified that the arbitration fee of the Sole Arbitrator shall be payable in accordance with the Manual of Procedure of Alternative Dispute Resolution, 2009 as amended by the notification dated 23 March 2017 read with the Fourth Schedule of the 1996 Act or as determined by the Arbitrator with the consensus of the parties.

The Court directed the Registry to intimate Justice Sabina for her approval and declaration in terms of Section 11(8) read with Section 12(1) of the 1996 Act. It recorded that all issues raised by the parties before the Arbitrator shall be considered in accordance with law. Invoking Section 29A expectations on timelines, the Court stated that the proceedings are required to be concluded within the scheduled time and expected the parties to appear before the Arbitrator on 9 June 2025 or on any other date as informed by the Arbitrator, subject to agreement by the parties. The Court further directed the parties to provide their contact details and those of their authorised representatives or lawyers to facilitate communication by the Arbitrator, adding that information sent by the Arbitrator to such addresses or numbers shall be treated as sufficient communication unless changed.

Before parting, the Court clarified that the respondents, being secured creditors, would be at liberty to proceed further against the applicants in terms of the Supreme Court’s decision cited in the order. The order concludes with the Judge’s signature and case-end formalities.

Advocates Representing the Parties
For the Petitioners: Mr. Dilip Sharma
For the Respondents: Mr. Naman Yadav; Mr. Jitendra Choudhary

Case Title: Shekharchand Sacheti & Anr. v. S.M.F.G. India Home Finance Co. Ltd. & Anr.
Neutral Citation: 2025: RJ-JP:21684
Case Number: S.B. Arbitration Application No. 81/2024
Bench: Justice Anoop Kumar Dhand