Bombay High Court
Tata Capital Limited vs Vijay Devij Aiya on 22 April, 2025
2025:BHC-OS:6716
F-J-CARAP-237-2024-.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL ARBITRATION APPLICATION NO.237 OF 2024
WITH
COMMERCIAL ARBITRATION APPLICATION NO.243 OF 2024
Tata Capital Limited ...Applicant
Versus
Vijay Devij Aiya & Anr. ...Respondents
Mr. Nikhil Mehta i/b KMC Legal Ventures Advocates for
Applicants
Mr. Shanay Shah a/w. Hemal Ganatra i/b. Hemal Ganatra,
Advocates for Respondents.
CORAM: SOMASEKHAR SUNDARESAN, J.
RESERVED ON: March 24, 2025
PRONOUNCED ON: April 22, 2025
JUDGEMENT:
Context and Factual Background:
1. These Applications have been filed under Section 11 of the
Arbitration and Conciliation Act, 1996 ( “the Act”), seeking appointment
of an arbitrator in connection with disputes and differences that are said
to have arisen between the parties under a Loan Agreement dated
Digitally
signed by
ASHWINI
ASHWINI JANARDAN
JANARDAN VALLAKATI
VALLAKATI Date:
2025.04.22
14:27:25
+0530
Page 1 of 16
April 22, 2025::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.docJanuary 31, 2016 and another top-up Loan Agreement dated October 31,
2017 (collectively, the “Agreement”). The arbitration agreement is
contained in Clause 12.18 in each of the Applications (found at Page
Nos. 44 and 46 respectively).
2. Since there is trenchant opposition to these Applications
being allowed in view of the language contained in the arbitration
agreement, the provisions of the arbitration agreement (identical for
both Applications) are extracted below:-
“if any dispute, difference or claim arises between the parties hereto in
connection with this Agreement or the security hereof or the validity,
Interpretation, Implementation or alleged breach of this Agreement or
anything done or omitted to be done pursuant to this Agreement or
otherwise in relation to the security hereof, the parties shall attempt in
the first instance to resolve the same through negotiation/ conciliation.
If the dispute is not resolved through negotiation/conciliation within
thirty days after commencement of discussions or such longer period
as the parties agree to in writing, then the same shall be settled by
arbitration to be held in Chennai/Delhi/Mumbai in accordance with
the Arbitration and Conciliation Act 1996, or any statutory
amendments thereof and shall be referred to a person to be appointed
by TCSFL. In the event of death, refusal, neglect, inability, or
incapability of the person so appointed to act as a Arbitrator, TCSFL
may appoint a new arbitrator. The award of the arbitrator shall be
final and binding on all parties concerned.
Page 2 of 16
April 22, 2025
::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.docNotwithstanding anything contained hereinabove, in the event due to
any change in the legal status of TCSFL or due to any change or
amendment in law or notification being issued by the Central
Government or otherwise, TCSFL comes under the purview of the
Securitization 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
(the ‘DRT Act), which enables TCSFL to enforce the security under the
SARFAESI Act or proceed to recover dues from the Borrower under
the SARFAESI Act and/or the DRT Act, the arbitration provisions
hereinbefore contained shall, at the option of TCSFL cease to have any
effect and if arbitration proceedings are commenced but no award is
made, then at the option of TCSFL such proceedings shall stand
terminated and the mandate of the arbitrator shall come to an end
from the date when such law or its change/amendment or the
notification, becomes effective or the date when TCSFL exercises its
option of terminating the mandate of arbitrator, as the case may be.
Provided that neither a change in the legal status of TCSFL nor a
change/amendment in law or issuance of notification as referred to in
this sub paragraph above, will result in invalidating an existing award
passed by an Arbitrator pursuant to the provisions of this Agreement.”
3. It will be seen from a plain reading of the foregoing that at
the threshold, the provision contains an unequivocal agreement
between the parties to resolve their disputes and differences by
reference to arbitration in Mumbai. Indeed, the arbitration agreement
entails a unilateral appointment of an arbitrator, which is a facet now
Page 3 of 16
April 22, 2025
::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.doc
clearly declared as being untenable and in conflict with the foundational
principle of independence and impartiality of the arbitrator. The
Applicant fairly states that in view of this element in the provision, he
would leave it to this Court to appoint an arbitrator.
4. The objections to allowing these Applications flows primarily
from the second paragraph of the arbitration agreement. The provision
is a non-obstante clause that enables the Applicant to opt out of the
arbitration agreement in the event the Applicant becomes a beneficiary
of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (” SARFAESI Act“) and other
special debt recovery legislation referred to therein. Put differently, the
Applicant would have the right to opt out of arbitration. No such
provision to opt out is provided for the Respondents.
Objections to the Applications:
5. The Respondents’ objections to these Applications being
allowed, is layered. First, the Respondents commends for endorsement,
a judgement of a Learned Division Bench of the Delhi High Court in
Tata Capital Housing Finance Ltd. Vs. Shri Chand Construction &
Page 4 of 16
April 22, 2025
::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.doc
Apartments Pvt. Ltd.1 (Tata Capital) in which, an identical clause has
been interpreted, holding the clause to be invalid since it destroys the
essential feature of mutuality that is fundamental for validity of an
arbitration agreement.
6. Second, the Respondents contends that the Applicant having
chosen to enforce through SARFAESI Act, the Applicant is deemed to
have lost its right to pursue arbitration and that it has made an election
in favour of SARFAESI Act.
7. Third, according to the Respondents, arbitration had already
been initiated in the past and the Applicant unilaterally appointed an
arbitrator by a letter dated October 29, 2018. The Respondents contend
that when the Applicant became a beneficiary of debt recovery
legislation, the Applicant did not “withdraw” from the arbitration,
reserving the right to initiate it afresh. Instead, the Respondents
submit, the Applicant let the arbitration lapse. The Respondents would
submit that by an order dated December 10, 2019, the Learned
Arbitrator unilaterally appointed earlier, had noted that the mandate
had expired and left it to the parties to file an appropriate application in
1
2022 (1) ARB LR 213 (Delhi) (DB) – paragraphs 17,18,29 and 30 are pressed into service.
Page 5 of 16
April 22, 2025
::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.doc
accordance with law, but no application seeking extension of the
mandate was filed by the Applicant under Section 29-A of the Act.
Therefore, the Respondents submit, the arbitration proceedings already
stood terminated and cannot be revived yet again.
8. The defence of the Applicant to these objections is
conceptual, about lenders having a right to pursue arbitration even
while being a beneficiary of enforcement measures under the SARFAESI
Act. The Applicant seeks to rely on M.D. Frozen Foods vs. Hero Fincorp
Ltd.2 (MD Frozen Foods) to defend the right to pursue arbitration
despite having become a beneficiary of the SARFAESI Act and having
chosen to also adopt enforcement measures under the SARFAESI Act.
The Applicant would submit that since both processes can be pursued in
parallel, the objection based on the Applicant’s option to terminate the
arbitration agreement is irrelevant, and that in any case the Applicant
has never terminated the arbitration agreement.
Analysis and Findings:
9. On the first issue, the short point for consideration is whether
the ratio in Tata Capital commends itself for endorsement by this Court,
2
(2017) 16 SCC 741
Page 6 of 16
April 22, 2025
::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.doc
bearing in mind that the jurisdiction being exercised by this Court is
under Section 11 of the Act. Whether the absence of mutuality in the
second part of the arbitration agreement is destructive of the very
existence of the arbitration agreement is the question I need to answer.
10. Towards this end, it would be necessary to see the context in
which the judgement in Tata Capital was rendered. The loan agreement
between the parties in that case – essentially, the borrower and the
lender Tata Capital Housing Finance Ltd. – had an identical arbitration
clause. In that case, the borrower had repaid the loans owed to the
lender and sought return of the title documents held by the lender under
a mortgage. The lender had lost and misplaced the original title deeds.
The borrower suffered injury in the form of a lost opportunity to sell the
property and filed a civil suit for damages on the premise that nothing
remained in the loan obligations. Although the lender had indicated
that it would file an application under Section 8 of the Act, the lender
went on to seek time to file a written statement in response to the suit.
Since the lender did not file a written statement, a Learned Single Judge
closed the right of the lender to file the written statement. The lender
challenged the decision shutting out the written statement before a
Division Bench, and succeeded in setting aside the direction foreclosing
Page 7 of 16
April 22, 2025
::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.doc
the written statement.
11. Meanwhile, the lender filed an application under Section 8 of
the Act, and claimed that the suit would not lie. The lender contended
that the arbitration agreement may have terminated for claims that the
lender may raise; but that for claims raised by the borrower, the
arbitration agreement remained in existence. Dealing with such
contention, the Learned Single Judge held that the dispute between the
parties was not about repayment of the loan but about the lender having
lost the original title deeds. That apart, the Learned Single Judge held
that the arbitration agreement did not exist in the manner contended by
the lender. The Learned Single Judge ruled that Section 8 of the Act
required the Court to examine the existence of an arbitration agreement
in respect of all or certain “disputes” (the parties could choose which
disputes between them would be covered by arbitration) but it could
never be argued that claims relating to the same dispute in the
relationship could be divided on the basis of which party’s claim was
arbitrable and which party’s claims could be left out.
12. It was this decision of the Learned Single Judge that was
challenged before the Learned Division Bench of the Delhi High Court
Page 8 of 16
April 22, 2025
::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.doc
by the lender. The lender argued that safe-keeping of the mortgaged
title deeds was explicitly covered by the loan agreement and therefore
any dispute about failure to keep them safe was covered by the
arbitration agreement. It was argued that the right to terminate the
arbitration agreement was only with the lender and not with the
borrower, which meant that the borrower was bound to proceed to
arbitration and had no right to file a suit.
13. It is in this peculiar factual matrix and context that the Delhi
High Court considered the existential validity of the arbitration
agreement in the context of Section 8 of the Act. In a nutshell, the
context was of the borrower having filed a suit and the lender having
asserted the right to file a written statement. On being denied that
right, the lender appealed and secured its right to file the written
statement. After securing such right, the lender argued that no civil suit
would lie.
14. Such provocative and irreconcilable conduct was the context
of the judicial review in that case, and that too after the suit was well
underway. In that context, the lender’s submission that one party’s
claim under the same agreement would need to proceed to arbitration
Page 9 of 16
April 22, 2025
::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.doc
while the other party’s claim need not be covered by arbitration, was
repealed. It was in that context that the Court ruled that there was an
absence of mutuality, which was fatal to the agreement.
15. In my opinion, with the deepest respect for the Learned
Division Bench of the Delhi High Court, the ruling on the absence of
mutuality rendering the arbitration agreement to be illegal has to be
read in this context and not in absolute terms. 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. The arbitration agreement in any case
was structured to allow the lender to terminate the arbitration
agreement and by securing the right to file the written statement, the
lender could be said to have exercised its option to terminate the
arbitration agreement.
16. Against such backdrop, another parallel on dealing with an
illegal feature of an arbitration agreement would be apt to discuss. It is
now clearly declared law that the element of unilateral appointment of
an arbitrator is illegal. However, rather than such element of illegality
rendering the entire arbitration agreement void ab initio, such illegality
Page 10 of 16
April 22, 2025
::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.doc
is capable of being cured by ensuring that the appointment of an
independent and impartial arbitrator is achieved by eliminating the
element of one party alone appointing the arbitrator. By the same
token, the parties having unequivocally agreed to arbitrate in the first
part of the arbitration agreement (Clause 12.18 extracted above), in my
opinion, the optionality in the second part ought not the erode the
substratum of the arbitration agreement. Instead, just as the element of
unilateral appointment has been held to be illegal and that element is
excised by courts, it may follow that one party’s option to terminate the
arbitration agreement can be excised by eliminating such right or by
making such right bilateral to save the arbitration agreement. In any
case, for purposes of this case, such an approach is academic since the
matter at hand is not a case of the Respondent seeking to protect a civil
suit filed by the Respondents (unlike in Tata Capital before the Delhi
High Court). The Applicant also is not claiming to terminate the
arbitration agreement. The Applicant is seeking to invoke it.
17. The Respondents in this case are calling upon this Court to
non-suit the Applicant from arbitration on the premise that a clause of
an identical nature has been held by the Delhi High Court to be illegal in
Tata Capital. Neither are the Respondents seeking to litigate outside
Page 11 of 16
April 22, 2025
::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.doc
arbitration nor is the Applicant seeking to non-suit the Respondents in
any other forum. There is no dissonance in the form of any party
claiming that one side’s claims alone are arbitrable and the other party’s
claims are not. Therefore, with the deepest respect to the Learned
Division Bench of the Delhi High Court, I am of the view that Tata
Capital, which is a decision under Section 8 of the Act, would not impact
this Court’s limited jurisdiction under Section 11 of the Act.
18. The scope of review under Section 11 is explicitly set out in
Section 11(6A) of the Act. It is now trite law, with particular regard to
the decisions of a seven-judge Bench in the Interplay Judgement3
followed by multiple others, including SBI General4 and Patel5 that the
Section 11 Court ought not to venture beyond examining the existence of
a validly existing arbitration agreement that has been formally executed.
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.
Therefore, it would be open to the Respondents to file an application
under Section 16 of the Act.
3
In Re: Interplay Between Arbitration Agreements Under Arbitration and Conciliation Act, 1996 &
Stamp Act, 1899 – (2024) 6 SCC 1
4
SBI General Insurance Co. Ltd. v. Krish Spinning – 2024 SCC OnLine SC 1754
5
Ajay Madhusudan Patel v. Jyotrindra S. Patel – 2024 SCC OnLine SC 2597
Page 12 of 16
April 22, 2025
::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.doc
19. On the second issue, in MD Frozen Foods, the pursuit of the
enforcement remedies under the SARFAESI Act has unequivocally been
held to be a remedy in addition to the adjudicatory process available
under the Act. Therefore, the mere fact that the Applicant initiated
proceedings under the SARFAESI Act would not bring to an end the
arbitration agreement.
20. Finally, the third issue is a tricky one. The Respondents
contend that the Applicant had initiated arbitration through a
unilaterally appointed arbitrator and that arbitration was allowed to
lapse. 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. Even after an award is passed by a unilaterally appointed
arbitrator, it would be open to the unilaterally-appointing party to give
up the award to avoid expenditure of costs in defending the indefensible
and seek to initiate arbitration afresh. In those circumstances, even if
the mandate of the unilaterally appointed arbitral tribunal had lapsed,
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. Therefore, in
exercise of the limited jurisdiction under Section 11 of the Act, I do not
Page 13 of 16
April 22, 2025
::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.doc
think it appropriate to delve into the existential substance of the
arbitration agreement.
21. Being satisfied that an arbitration agreement is validly in
existence or, at worst, is still subsisting, it is in the fitness of things to
refer the disputes and differences between the parties in connection
with the Agreement to arbitration by a Sole Arbitrator. It would be open
to the Respondents to address the arbitral tribunal appointed hereby, to
adjudicate on its own jurisdiction in exercise of its powers under Section
16 of the Act.
22. In these circumstances, both these Applications are hereby
finally disposed of, in terms of the following order:
A] 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;
Office Address:- 11-E, 1st Floor, Examiner Press Building,
Opposite Lentin Chambers, Dalal Street,
Page 14 of 16
April 22, 2025::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.docFort, Mumbai-400 001.
Email ID: [email protected]
B] 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;
C] 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;
D] 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
Page 15 of 16
April 22, 2025::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::
F-J-CARAP-237-2024-.docArbitral Tribunal. Communications to such email
addresses shall constitute valid service of correspondence
in connection with the arbitration;
E] 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.
23. 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.
24. 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.
25. All actions required to be taken pursuant to this order shall
be taken upon receipt of a downloaded copy as available on this Court’s
website.
[ SOMASEKHAR SUNDARESAN, J.]
Page 16 of 16
April 22, 2025
::: Uploaded on – 22/04/2025 ::: Downloaded on – 22/04/2025 22:42:07 :::