Loan Agreement Exhausted On Full Repayment, Later Damages Claim Not Covered By Arbitration Clause: Himachal Pradesh High Court
Isabella Mariam
The High Court of Himachal Pradesh Single Bench of Justice Ajay Mohan Goel dismissed a lender’s request to refer a borrower’s civil suit to arbitration, holding that the claim was not governed by the arbitration clause in the earlier loan agreement. The dispute arose from a suit filed by the borrower seeking damages for alleged harassment and mental agony after the lender did not issue a No Objection Certificate despite full repayment of the vehicle loan. The Court found that the loan contract stood exhausted upon complete repayment, and that the subsequent demand for damages over the non-issuance of the certificate could not be treated as a dispute arising from the loan agreement.
The dispute arose from a civil suit instituted by the respondent against the petitioner’s seeking recovery of ₹2,00,000 along with interest as damages for mental pain, agony, and harassment allegedly caused due to non-issuance of a No Objection Certificate after repayment of vehicle loans. The respondent had availed a vehicle loan of ₹2,00,000 in 2009, which was repaid with interest, the last instalment being paid on 28.03.2011. Subsequently, a fresh loan of ₹2,00,000 was taken in 2011 against the same vehicle, which was also fully repaid by 25.10.2013.
After repayment, the respondent made repeated requests to the petitioners for issuance of a No Objection Certificate to enable sale of the vehicle, which were not acceded to. A consumer complaint filed earlier was withdrawn for want of jurisdiction, after which proceedings were initiated before the Permanent Lok Adalat, which directed issuance of the certificate. Despite the order attaining finality, it was not complied with. Consequently, the respondent instituted a civil suit for damages.
During the pendency of the suit, the petitioners filed an application under Section 8 read with Section 5 of the Arbitration and Conciliation Act, 1996, seeking reference of the dispute to arbitration on the strength of the arbitration clause contained in the loan agreement. The application was dismissed by the Trial Court, and the dismissal was affirmed in appeal, leading to the present petition.
The Court examined the nature of the dispute and the scope of the arbitration clause relied upon by the petitioners. It noted that the civil suit was filed for damages arising from alleged harassment and mental agony caused due to non-issuance of the No Objection Certificate, despite complete repayment of the loan.
The Trial Court’s reasoning, which was affirmed by the Appellate Court, was extracted and considered. The Court recorded that “from the perusal of the plaint it can be clearly seen that the present suit does not retain to any dispute arising out of the loan agreement rather it is further recovery on account of damages caused to the plaintiff.” It was further noted that “since the present suit does not retain to any dispute arising out of loan agreement the section 5 of the arbitration and conciliation act is not attracted in the present case.”
The High Court observed that the contractual relationship between the parties stood exhausted upon repayment of the loan. It stated that “the suit filed for damages obviously has nothing to do with the contract initially entered into between the petitioners and the respondent–plaintiff, because the same stood exhausted once the loan amount was repaid by the plaintiff.” The Court also recorded that the damages claimed were based on grounds independent of the loan agreement.
With respect to the arbitration clause providing for appointment of a sole arbitrator by the bank, the Court observed that “this condition is otherwise also hit by Section 12(5) of the Arbitration and Conciliation Act, as amended in the year 2016.” It further recorded that reliance on such a clause could not assist the petitioners.
The Court directed: “Otherwise also in light of the fact that the civil suit has got nothing to do, per se, with the agreement and ‘cause of action’ pleaded therein stands in isolation from the contents of the agreement, as this Court does not find any ground for interference with the orders p1assed by the learned Courts below, the petition is dismissed. Pending miscellaneous applications, if any, also stand disposed of accordingly.”
Advocates Representing the Parties
For the Petitioners: Mr. Jai Dev Thakur, Advocate
For the Respondent: Not recorded in the judgment
Case Title: Kotak Mahindra Bank Ltd. & Anr. v. Jaimal Singh
Neutral Citation: 2025:HHC:40712
Case Number: CMPMO No. 689 of 2025
Bench: Justice Ajay Mohan Goel
