The Delhi High Court has ruled that the arbitration provision of Section 11 of the SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest) Act is inapplicable to a borrower that also happens to be a financial institution. This was seen in the case of BELL FINVEST INDIA LIMITED & ORS Vs. A U SMALL FINANCE BANK LIMITED (ARB.P. 453/2021) and the case was presided over by HON’BLE MR. JUSTICE ANUP JAIRAM BHAMBHANI.
FACTS OF THE CASE
The petitioner is a Non-Banking Finance Company (NBFC), which makes it eligible to invoke arbitration under Section 11 of the SARFAESI Act because that section mandates arbitration when a dispute involves two financial institutions. This NBFC qualifies as a financial institution under Section 2(1)(m)(iv) of the SARFAESI Act.
The parties signed a Rupee Facility Agreement on April 26, 2019, under which the respondent (A bank) loaned the petitioner (NBFC) Rs. 10 crores in exchange for the creation of a security interest in the respondent’s favor. After that, there was a disagreement between the parties, and the petitioner’s account was designated as an NPA.
Considering this, the respondent initiated legal action under Section 13 of the SARFAESI Act before DRT Jaipur to enforce a security interest. Angered by this, the petitioner sent the respondent a notice of arbitration and asked them to pick one of three arbitrators from a panel of three names it had provided. The petitioner filed the current petition for the appointment of the arbitrator after the parties failed to mutually agree upon an arbitrator.
First, the Court addressed the dispute over the Court’s geographic jurisdiction. The Court ruled that because the current arbitration is not the result of an agreement, the idea of seat would not apply and jurisdiction would be determined by Section 2(1)(e) of the A&C Act read in conjunction with Section 20 of the CPC.
The Court found that it has jurisdiction over the application because the respondent’s main branch is located in New Delhi, as well as the fact that the agreement was stamped and signed there.
The Judge concluded that the lender had a right to enforce the security under Section 13 of the A&C Act. The Court determined that because the Act designates a specific forum, the DRT, to resolve a lender-borrower issue, the dispute is not subject to arbitration considering Vidya Drolia and Transcore v. UOI (2008). As a result, the petitioner is likewise unable to use the “election” doctrine to prefer arbitration to the available DRT remedies.
Hence, the court dismissed the petition.
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JUDGEMENT REVIEWED BY ABHINAV SHUKLA.