Religare Finvest Limited v. Surya Silk Mills & Ors.

12. It is submitted that despite the auction under the SAFAESI Act, the full outstanding loan amount could not be recovered. It is submitted that as of 21.05.2024, a balance of Rs. 1,70,37,983.56/- remained due.

13. Since the outstanding dues remained unpaid even after the property was auctioned, the petitioner issued a fresh invocation notice dated 15.01.2024 under Section 21 of the A &C Act. However, the respondents have failed to reply.

14. Now the petitioner had approached this Court seeking the appointment of an independent sole arbitrator under Section 11(6) of the Act.

15. It is submitted by the petitions that the scope of enquiry under Section 11(6) of the Act is limited to the existence of an arbitration agreement between the parties, and other disputes, including those regarding arbitrability or maintainability, fall within the jurisdiction of the arbitral tribunal. Reliance is placed on the judgment of the Supreme Court in SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 SCC OnLine SC 1754

16. While countering the objection raised by respondent no. 4 that the present invocation is barred due to the petitioner’s earlier initiation of arbitration proceedings through its letter dated 15.11.2018 and subsequent failure to seek an extension of the arbitrator’s mandate, which expired on 19.04.2022, it is submitted by the petitioner that the arbitrator previously appointed was unilaterally nominated by the petitioner, a practice that has been recognised impermissible by the Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd.

17. It is submitted that the respondents’ reliance on the judgment of the Supreme Court in HPCL Bio-Fuels Ltd. v. Shahaji Bhanudas Bhad, 2024 SCC OnLine SC 3190, is misplaced. It is submitted that the observations in HPCL cannot be construed as imposing an absolute prohibition on invoking the same arbitration clause more than once, particularly where the earlier proceedings are non-est. The Petitioner relies on the Hon’ble Supreme Court’s ruling in Perkins (supra) and the Division Bench judgment of the Delhi High Court in Govind Singh v. Satya Group Pvt. Ltd., 2023 SCC OnLine Del 37., 2019 SCC OnLine SC 1517 and Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company, 2024 INSC 857. In light of these authoritative pronouncements, the initial appointment was legally unsustainable and non-est in law. Consequently, the question of seeking an extension under Section 29A of the Arbitration and Conciliation Act, 1996, did not arise.

18. It is further submitted that the current invocation is based on a fresh and distinct cause of action, i.e., the recovery of the outstanding balance amounting to ₹2,19,03,252/- as on 21.01.2024, after adjusting the proceeds of the secured asset sold under the SARFAESI Act. Hence, the petitioner is not reviving an old claim but seeking adjudication of a new dispute arising after partial recovery.

19. In order to substantiate its arguments, reliance has been placed on Dolphin Drilling Ltd. v. ONGC, (2010) 3 SCC 267, Parsvnath Developers Ltd. v. Rail Land Development Authority, 2018 SCC OnLine Del 12399 and Panipat Jalandhar NH[1] Tollway (P) Ltd. v. NHAI, 2022 SCC OnLine Del 108.

20. It is further submitted that the judgments cited by respondent no. 4, Fedbank Financial Services Ltd. v. Narendra H. Shelar, 2020 SCC OnLine Bom 5252, and Raj Chawla & Co. v. Mine Media & Information Services, 2023 SCC OnLine Del 520, are distinguishable as in those cases, there was no new cause of action after closure of earlier proceedings. In contrast, here the SARFAESI recovery led to a partial repayment, and the current claim relates to the remaining balance, arising post-sale.

21. At last it is submitted that the present application is well within the limitation period prescribed under the Limitation Act, 1963. Moreover it is submitted that the present invocation of arbitration is based on a separate and distinct cause of action. The earlier invocation related to the entire outstanding financial facilities, whereas post-termination of the earlier arbitration, the petitioner exercised its rights under the SARFAESI Act,

2002. The secured asset was sold on 07.10.2021, and the remaining outstanding dues after such sale gave rise to the current dispute. Consequently, a fresh notice invoking arbitration was issued on 15.01.2024, and the present Section 11 petition followed. Therefore, this invocation is based on a fresh dispute and a distinct cause of action, and is not timebarred.

22. The respondent no. 4 while objecting to the appointment of a sole arbitrator has submitted as under i. It is submitted that the petitioner had already invoked arbitration by issuing a legal notice dated 15.11.2018, wherein it demanded repayment of₹2,31,48,941.63 /-. Without awaiting a response from the respondents, the petitioner, by letter dated 29.11.2018, unilaterally appointed a sole arbitrator, Mr. Raj Kumar Sharma, Retired ADJ. ii. The respondents, vide reply dated 19.12.2018, raised specific objections to the unilateral appointment of the arbitrator and denied the allegations made in the notice. A formal challenge was also filed under Sections 12(3), 13(1), and 13(2) of the Act, questioning appointment of the arbitrator. However, the Ld. Arbitrator dismissed the said challenge by order dated 20.05.2019 and proceeded with the matter. iii. It is submitted that the mandate of the said arbitrator expired on 19.04.2022, in terms of Section 29A(4) of the Act. Despite the expiry, the petitioner failed to seek an extension of the mandate or approach the Court under Section 29A(5). It is submitted that the petitioner, by its inaction, effectively abandoned its claims. iv. Respondent no. 4 submits that, having abandoned its claims, the petitioner is now barred from re-invoking the arbitration clause. Reliance is placed on the decision of the Supreme Court in M/s HPCL Biofuels Ltd. v. M/s Shahaji Bhanudas Bhad v. Further reliance is placed on, 2024 SCC OnLine SC 3190 which held that once a party unconditionally withdraws the arbitration petition without seeking liberty to refile, a second invocation is impermissible.

ANTRIX Corporation Ltd. & Anr. v. Devas Multimedia Pvt. Ltd. (2014) 11 Supreme Court Cases 560 vi. It is the respondent’s case that the petitioner had an available statutory remedy under Section 29A of the Act, which includes the power of the Court not only to extend the mandate of the arbitrator but also to substitute the arbitrator, if required. Therefore, there was no necessity for the petitioner to file a fresh application under Section 11. Reliance is placed on the recent judgment in, where the Supreme Court observed that “Once the power has been exercised under the Arbitration Agreement there is no power left to, once again, refer the same disputes to arbitration under Section 11 of the 1996 Act, unless the order closing the proceedings is subsequently set aside.”. Rohan Builders (India) Pvt. Ltd. v. Berger Paints India Ltd., 2024 SCC OnLine SC 2494, where the Supreme Court clarified that recourse under Section 29A can serve as a complete remedy and observed that “Section 29A(6) does not support the narrow interpretation of the expression “terminate”. It states that the court – while deciding an extension application under Section 29A (4) – may substitute one or all the arbitrators. Section 29A (7) states that if a new arbitrator(s) is appointed, the reconstituted arbitral tribunal shall be deemed to be in continuation of the previously appointed arbitral tribunal. This obliterates the need to file a fresh application under Section 11 of the A & C Act for the appointment of an arbitrator.” vii. Reliance has also been places on Raj Chawla And Co. Stock And Share Brokers Vs. M/S Nine Media and Information Services Ltd. 2023 SCC OnLine Del 520, Fedbank Financial Service Ltd Through Its Ao Zahid Sultan Versus Narendra H Shelar, Through Lrs & Ors, 2020 SCC Online Bom 5252 and Swadesh Kumar Agarwal Vs Dinesh Kumar Agarwal And Others (2022) 10 SCC 235. viii. It is the case of the respondent no. 4 that the petitioner is attempting to reinvoke arbitration after nearly two years of inaction since the expiry of the mandate of the arbitrator on 19.04.2022. ix. Respondent no. 4 submits that the petitioner has already recovered a sum of ₹4.85 Crores through enforcement proceedings under the SARFAESI Act, 2002. This amount is significantly higher than the original claim of₹2.31 C rores. Therefore, the debt stands discharged, and no further claims survive under the same cause of action. Arbitration proceedings cannot now be pursued for a satisfied claim. x. Relying on SBI General Insurance Co. Ltd. v. Krish Spinning (supra), the respondent argues that courts can examine the validity of the arbitration clause while considering appointment. Since the Petitioner’s claim stands satisfied, the arbitration clause itself is rendered ineffective.

23. It is an admitted fact that the present petition concerns a second invocation of the arbitration clause of the Loan Agreement. The arbitration clause was earlier invoked by the petitioner vide notice dated 15.11.2018, wherein the petitioner sought reference of disputes to arbitration. However, the said proceedings were terminated due to expiry of the arbitrator’s mandate, and no application for extension was filed by the petitioner under Section 29A of the A&C Act. The petitioner has now issued a fresh notice invoking arbitration dated 15.01.2024.

24. The primary objection raised by the respondent no. 4 is that the petitioner, by failing to seek extension of the arbitrator’s mandate in the earlier proceedings, effectively abandoned its claims. Consequently, it is contended that a second invocation of the arbitration clause is legally impermissible. In support of this contention, reliance is placed on the judgment of the Supreme Court in HPCL Bio-Fuels Ltd. v. Shahaji Bhanudas Bhad, 2024 SCC OnLine SC 3190 wherein it was held that a second application under Section 11(6) of the Act is not maintainable when the earlier application was withdrawn unconditionally, without seeking liberty to refile. The relevant portion of the judgment is reproduced as under- “66. If that is so, the unconditional withdrawal of a Section 11(6) petition amounts to abandoning not only the formal prayer for appointing an arbitrator but also the substantive prayer for commencing the actual arbitration proceedings. It amounts to abandoning the arbitration itself. It results in abandonment of the notional ‘arbitration proceeding’ that had commenced by virtue of Section 21 and thus amounts to an abandonment of a significant nature. Therefore, it is all the more important to import and apply the principles underlying Order

25. The legal position is well settled that an arbitration clause can be invoked multiple times, provided a fresh or continuing cause of action exists. There is no bar to successive invocations of an arbitration agreement to address subsequent disputes or claims.

26. In Dolphin Drilling Ltd. v. ONGC, (2010) 3 SCC 267, the Supreme Court addressed a similar issue where the arbitration agreement was invoked a second time. The respondent therein argued that the clause was a one-time measure. However, the Court rejected this contention, holding as under –

27. Similarly, in Panipat Jalandhar NH[1] Tollway Pvt. Ltd. v. NHAI, 2022 SCC OnLine Del 1, this Court observed as under - “47. In the opinion of this Court multiple arbitrations can exist if the cause of action continues or arises after constitution of a tribunal. This Court is informed that disputes pertaining to the year 2013 are pending before first arbitral tribunal. The suspension and termination of Concession Agreement in question are subject matter of consideration before the second arbitral tribunal. The petitioner has not been able to establish that the disputes, resolution of which is sought under the proposed third arbitral tribunal, cause of action thereof arose post suspension and termination of Concession Agreement. This fact is further substantiated by the language of Notice dated 4th June, 2021 invoking arbitration, which clearly stipulates that for resolution of differences which were subject matter of Notice of Dispute dated 25th October, 2019, the constitution of third arbitral tribunal is sought, which is already under consideration before the second arbitral tribunal and so, in the considered opinion of this court, it would lead to multiple observations and findings by two different tribunals, which cannot be permitted.”

28. Even in HPCL Biofuels (supra), the Court clarified that a second invocation is barred only if the earlier application was based on the same cause of action and withdrawn without liberty. However, if a fresh cause of action arises subsequently, the arbitration clause can be re-invoked. The relevant portion of the judgment is reproduced as under –

29. In the present case, the respondent no. 4 contends that no fresh cause of action exists. However, it is noticed that at the time of the first invocation, the petitioner’s claims pertained to recovery of entire outstanding as on 09.11.2018 under the loan agreement. During the pendency of the earlier arbitration, proceedings under the SARFAESI Act were initiated, pursuant to which the petitioner recovered ₹4,85,10,000/- through public auction of the secured assets of the respondents.

30. The petitioner now claims that despite the recovery under SARFAESI (which is a development subsequent to the earlier invocation), a substantial amount of ₹ 2,29,33,699.001 remains outstanding, and seeks to recover this through the present arbitration. It is the petitioner’s case that in the peculiar factual context, a fresh cause of action arose in its favor for invoking arbitration.

31. In light of the above factual matrix, and considering the limited scope of judicial intervention under Section 11 of the Act, this Court is of the view that the issue/s as to (i) whether the present invocation is pursuant to any fresh cause of action; (ii) whether the claim/s sought to be raised in the present arbitration are maintainable or not (in the light of alleged abandonment of the earlier arbitration; or for any other reason), are mixed questions of facts and law, and ought to be adjudicated by the arbitral tribunal. This Court in Parsvnath Developers Limited and Another v. Rail Land Development Authority, 2018 SCC OnLine Del 12399 has observed as under –

Corporation Ltd., (2010) 3 SCC 267, has held as under: “8. The plea of the respondent is based on the words “all disputes” occurring in Para 28.[3] of the agreement. Mr. Aggrawal submitted that those two words must be understood to mean “all disputes under the agreement” that might arise between the parties throughout the period of its subsistence. However, he had no answer as to what would happen to such disputes that might arise in the earlier period of the contract and get barred by limitation till the time comes to refer “all disputes” at the conclusion of the contract. The words “all disputes” in Clause 28.[3] of the agreement can only mean “all disputes” that might be in existence when the arbitration clause is invoked and one of the parties to the agreement gives the arbitration notice to the other. In its present form Clause 28 of the agreement cannot be said to be a one-time measure and it cannot be held that once the arbitration clause is invoked the remedy of arbitration is no longer available in regard to other disputes that might arise in future.”

11. The question whether the claim of the petitioner would be barred by the principles of res judicata or estoppel or by Order II Rule 2 of the CPC are not matters to be considered by this Court while exercising its jurisdiction under Section 11 of the Act. (Indian Oil Corporation Ltd. v. SPS Engineering Ltd., (2011) 3 SCC 507)).

12. The legislature by amending the Act by way of the Arbitration and Conciliation (Amendment Act) 2015 and the insertion of Section 11 (6A) of the Act has also restricted the scrutiny of the Court at the stage of adjudicating an application under Section 11 of the Act only to the existence of the Arbitration Agreement.

13. In view of the above, I see no impediment in appointing a nominee Arbitrator for the respondent to adjudicate the disputes that are sought to be raised by the petitioners in relation to the abovementioned Development Agreement. In such proceedings, all objections of the respondent shall remain open and it would be for the Arbitral Tribunal to decide the same, may be as primary issues.”

32. Furthermore, the unilateral appointment of the previously appointed arbitrator is not in dispute. In light of the authoritative pronouncements of the Supreme Court in TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 8 SCC 377, Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760, and Bharat Broadband Network Ltd. v. United Telecoms Ltd., 2019 SCC OnLine SC 547 and Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company, 2024 INSC 857, it is now a settled proposition of law that any unilateral appointment of an arbitrator by one of the parties is legally invalid and void ab initio. Such an appointment is treated as non-est

33. In the context of a Section 11 petition being filed after unilateral appointment of an arbitrator, this Court in in the eyes of law. Fiitjee Ltd. v. Ashish Khare & Anr.

34. The judgment in ANTRIX Corporation Ltd. & Anr. v. Devas Multimedia Pvt. Ltd. (supra), as relied upon by respondent no. 4, is clearly distinguishable on facts. In ANTRIX, the issue pertained to repeated invocation of arbitration on the same cause of action. In contrast, the central contention of the petitioner in the present case is that a fresh and independent cause of action has arisen, thereby justifying a second invocation of the arbitration clause.

35. Similarly, the objections as regards the petitioner’s failure to seek an extension of the mandate of the previous arbitrator, and the reliance placed on Rohan Builders (India) Pvt. Ltd. v. Berger Paints India Ltd. (supra), Raj Chawla and Co. Stock and Share Brokers v. M/s Nine Media and Information Services Ltd. (supra), Fedbank Financial Services Ltd. through its AO Zahid Sultan v. Narendra H Shelar through LRs & Ors.

36. In the above circumstances, it cannot be said that the present petition is ex facie barred and/or that appointment of an arbitrator in these proceedings is altogether precluded on account of the circumstances highlighted by the respondent no. 4. These aspects require a detailed factual evaluation in the light of the extant legal position, an exercise which is best left to be conducted by a duly constituted arbitral tribunal., (supra), and Swadesh Kumar Agarwal Vs Dinesh Kumar Agarwal And Others (supra) do not really apply in the present case. These decisions pertain to scenarios where the parties sought to revive the same cause of action. In contrast, the petitioner herein seeks a fresh invocation of the arbitration clause based on a subsequent cause of action. Moreover, the aforesaid relied upon cases did not involve any “unilateral appointment” of the initially appointed arbitral tribunal (rendering the resultant proceedings non-est)

37. The scope of examination in these proceedings is confined to ascertaining prima facie whether there exists an arbitration agreement. This position has been comprehensively settled in Interplay between Arbitration Agreements under the Arbitration & Conciliation Act, 1996 & the Indian Stamp Act, 1899, In re, 2023 SCC OnLine SC 1666, and SBI General Insurance Co. Ltd. v. Krish Spinning

38. In the circumstances, since prima facie, there exists an arbitration agreement between the parties, this Court is inclined to constitute an Arbitral Tribunal to adjudicate the disputes between the parties., 2024 INSC 532.

39. Accordingly, Ms. Justice (Retd.) Deepa Sharma, former Judge, Delhi High Court, (Mob.: +91 9910384631) is appointed as the Sole Arbitrator to adjudicate the disputes between the parties.

40. It is made clear that all objections raised by the respondent no. 4 inter-alia:

(i) That the present arbitration is precluded on account of alleged abandonment of the previous arbitration;

(ii) Whether the present arbitration can be considered to be founded on any fresh cause of action;

(iii) Whether the claims are sought to be raised within limitation; and any other objections that may be raised by the respondents, shall be decided by the learned Arbitrator on its own merits. It is made clear that the observations made in the present judgment are for the limited purpose of considering whether an arbitral tribunal is required to be constituted or not.

41. This judgment shall not influence the arbitrator for the purpose of adjudging the preliminary/jurisdictional objections, raised by the respondent.

42. It is further clarified that the arbitration under each Loan Agreement shall be independent of each other even though a common learned arbitrator has been appointed for the sake of convenience. It shall be open for the learned arbitrator to have common hearings/ allow common evidence to be adduced, as may be deemed appropriate.

43. All rights and contentions of the respondents in this regard are expressly reserved.

44. The learned Sole Arbitrator may proceed with the arbitration proceedings subject to furnishing to the parties the requisite disclosures as required under Section 12 of the A&C Act.

45. The learned Sole Arbitrator shall be entitled to fee in accordance with IVth

46. Needless to say, nothing in this order shall be construed as an expression of this court on the merits of the case. Schedule to the A&C Act; or as may otherwise be agreed to between the parties and the learned Sole Arbitrator.

47. The present petitions are disposed of.

SACHIN DATTA, J MAY 13, 2025