Mere Reference To RDDB Act Or SARFAESI Act In Agreements Cannot Be A Bar To Invoke Arbitration: Bombay HC
The Bombay High Court held that mere reference to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002 (SARFAESI) or Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB) in the agreements cannot be a bar to invoke arbitration.
The Court held thus in a commercial arbitration petition filed by Tata Motors Finance Solutions Limited.
A Single Bench of Justice Manish Pitale observed, “… the SARFAESI Act is concerned only with the enforcement process after the adjudicatory process through arbitration is completed. Therefore, reference to the SARFAESI Act in the agreements cannot be a bar for the petitioner to invoke arbitration. The reference to RDDB Act in the agreements is limited to the extent that, if in future, there is a change in law and the petitioner is included under the definition of 'financial institution' under the RDDB Act, the petitioner has reserved its right to proceed under the RDDB Act. As on today, the petitioner is admittedly not notified as a ‘financial institution’ under the RDDB Act, and therefore, the adjudicatory process of arbitration is clearly available to the petitioner, in the light of the above-quoted arbitration clause in the agreements executed between the parties.”
Senior Advocate Chetan Kapadia and Advocate Abhinav Chandrachud appeared on behalf of the petitioner while Advocate Anita Castellino appeared on behalf of the respondent.
Brief Facts -
An objection was raised regarding the jurisdiction of the High Court to entertain two petitions filed under Section 9 of the Arbitration and Conciliation Act, 1996 (A&C Act) and an application under Section 11 on the ground that the petitioner company is a financial institution covered under the SARFAESI Act. It was claimed that the remedy of arbitration cannot be invoked by the company at all. It was further claimed that the company ought to approach the Debts Recovery Tribunal (DRT).
The company had advanced loan facilities to the respondents/persons for purchase of vehicles and accordingly, Loan-cum-Hypothecation-cum-Guarantee Agreements were executed between the parties and each of the agreements contained an arbitration clause. The loan amounts were secured by way of hypothecation of vehicles in respect of which the loan amounts were advanced. When the company noticed that one of the vehicles was sold by the respondents, it was constrained to invoke the arbitration clause. Since the company apprehended that the respondents would continue using the vehicles despite committing defaults and the vehicles may even be disposed of, the petition and application were filed before the High Court.
The High Court in view of the above facts noted, “The petitioner has claimed interim measures in the backdrop of the material placed on record to indicate the defaults on the part of the respondents in repayment of loans advanced for purchase of vehicles. The subject vehicles were hypothecated with the petitioner. The respondents have not been able to dispute the fact that they have indeed defaulted. In such a situation, there is enough material placed on record on behalf of the petitioner to show that, unless interim measures, as prayed on behalf of the petitioner, are granted, there is likelihood of the respondents dealing with the subject vehicles, including creating third party rights, which would unnecessarily complicate the matters, pending resolution of disputes through arbitration.”
The Court said that a strong prima facie case is made out by the company for grant of interim measures. It added that unless appropriate interim measures are granted, the company is likely to suffer grave and irreparable loss, thereby indicating that the balance of convenience is in favour of it.
“There is no dispute about the fact that there is an arbitration clause in the agreements executed between the applicant and the respondent. The arbitration clause is quoted hereinabove. The jurisdiction clause in the agreement specifies that, 'the Courts in Mumbai shall have jurisdiction', thereby indicating that the place of arbitration is Mumbai. The dispute raised by the petitioner is clearly arbitrable and therefore, this Court is inclined to exercise jurisdiction under Section 11 of the Arbitration Act”, concluded the Court.
Accordingly, the High Court partly allowed the petition, granted interim measures, and appointed an Advocate as the Sole Arbitrator.
Cause Title- Tata Motors Finance Solutions Limited v. Naushad Khan (Neutral Citation: 2023:BHC-OS:15041)
