Delhi High Court Resolves Arbitration Appointment Dilemma in Favor of Tata Capital
Case Title: Tata Capital Financial Services Ltd. v. MS Shree International & Ors.
Date of Decision: 04.09.2023
Case Number: ARB.P. 969/2022
Coram: Hon’ble Mr. Justice Yogesh Khanna
Introduction
The case revolves around the financial relationship between the Petitioner, a non-banking finance company, and the Respondent partnership firm. The Respondent partnership firm had availed loan credit facilities from the Petitioner for various years, with the individual partners serving as guarantors for the repayment of these loans. However, the Respondents defaulted on their repayments, leading to a dispute.
Tata Capital Financial Services Ltd. (the petitioner), a non-banking finance company, filed a petition under Section 11(5) of the Arbitration and Conciliation Act, 1996, seeking the appointment of a sole arbitrator. The arbitration was sought in accordance with Clause 12 of a loan cum guarantee agreement dated 10.08.2020, entered into between the petitioner and respondent no. 1 (MS Shree International), with respondent nos. 2 and 3 being the partners of respondent no. 1.
Facts
- The petitioner is a non-banking finance company, and the respondent no. 1 is a partnership firm.
- The respondent no. 1 availed various loan credit facilities from the petitioner over the years for its dealership business, executing separate Channel Finance Agreements each time.
- Respondent no. 2 and Late Mr. Laxmikant Chaudhary stood as personal guarantors for the loan facility in their individual capacity.
- The loan facility was renewed multiple times between 2015 and 2020.
- Defaults in repayment of the loan facilities led the petitioner to issue a recall notice on 23.06.2022, invoking arbitration for the recovery of the defaulted amount.
Issues
The primary issues addressed in this case were:
- The petitioner’s request for the appointment of a sole arbitrator under Clause 12 of the loan cum guarantee agreement.
- The objection raised by the respondents regarding the validity of the notice issued by the petitioner under Section 21 of the Arbitration and Conciliation Act.
Observation and Analysis
The primary issue addressed in this judgment is the validity of the appointment procedure for the sole arbitrator, as stipulated in the loan cum guarantee agreement. The Petitioner’s right to nominate or appoint the arbitrator was rendered invalid by a previous Supreme Court judgment, Perkins Eastman Architects DPC & Anr. versus HSCC (India) Ltd. The Supreme Court ruling stated that a party with an interest in the arbitration outcome cannot have the power to appoint a sole arbitrator. Consequently, the Petitioner was compelled to file this petition seeking the court’s intervention for the appointment of an arbitrator.
One of the Respondents’ objections was regarding the notice issued by the Petitioner under Section 21 of the Arbitration and Conciliation Act, alleging that it was not proper and did not fulfill the requirements. The court, however, rejected this objection, stating that the notice was duly received by the Respondents and that the relevant Channel Agreement in force was the one dated 10.08.2020.
The judgment emphasizes that the purpose of Section 21 is to determine the date of the arbitration’s commencement, and it cited State of Goa vs. Praveen Enterprises (2012) and Badri Singh Vinimay Private Limited vs. MMTC Limited 2020 to support its conclusion that the notice met the legal requirements.
Decision of the Court
The court ruled as follows:
- The petitioner’s request for the appointment of an arbitrator was granted, and Ms. Ina Malhotra was appointed as the arbitrator to adjudicate the disputes between the parties.
- The objections raised by the respondents regarding the validity of the Section 21 notice were dismissed. The court held that since the notice was received by the respondents and the last Channel Agreement from 2020 was in operation, there were no valid grounds to challenge the petitioner’s petition for arbitration.
The petition for the appointment of a sole arbitrator was granted based on the validity of the notice and the operative agreement.
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Written by – Ananya Chaudhary