Aditya Birla Finance Limited v. IIS NDT and Allied Service Private Limited and Ors

1. The present petition filed under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter ‘the A&C Act’) seeks constitution of an arbitral tribunal to adjudicate the disputes between the parties.

SACHIN DATTA, J. (ORAL)

2. The disputes between the parties have arisen in context of various Loan/Facility Agreements/Sanction Letters which were executed between the petitioner and the respondent nos. 1-4, in terms of which, the respondents have availed financial facilities aggregating to Rs. 2,77,68,877/- (Rupees two crores seventy seven lakhs sixty eight thousand eight hundred and seventy seven only). In the present case, the respondent no.1 is the principal borrower whereas respondent nos. 2-4 are the co-borrowers.

3. The parties initially executed a Loan Agreement dated 17.02.2018 (hereinafter ‘the loan agreement-I’), consisting of a term loan facility of Rs. 2,28,13,000/- along with Funded Interest Term Loan (FITL) of Rs. 8,53,000 and a Line of Credit (LOC) of Rs. 14,10,000/- amounting to a sum of Rs. 2,50,76,000/- (Rupees two crores and fifty lakhs seventy six thousand only).

4. The said loan agreement has come to be restructured on various occasions thereafter on account of the respondents requiring more working capital. Consequently, vide sanction letter dated 19.08.2020 (hereinafter referred as ‘sanction letter-II’), the existing term loan facility was modified and the parties executed a ‘Line of Facility Agreement’ dated 21.08.2020 (hereinafter referred as ‘loan agreement-II’).

5. Thereafter, the loan agreement-II was again modified by a sanction letter dated 29.05.2021 (hereinafter referred as ‘sanction letter-III’) and the initial term loan facility was restructured, in furtherance of which, the parties executed a loan agreement dated 10.06.2021 (hereinafter referred as ‘loan agreement-III’). Thereafter, vide an ad hoc sanction letter dated 07.02.2022 (hereinafter referred as ‘sanction letter-IV’), the existing line of credit facility was further enhanced.

6. In terms of the aforesaid loan agreement/s, a security in favour of the petitioner was created by respondent no.2 in respect of the property bearing Flat No. A-102, Pranay Vidhya CHSL, Off. Poisar Gymkhana Road, Poisar, Opposite Pawar Public School, Kandivali (West), Mumbai, Maharashtra – 400 067.

7. Upon the default being committed by the respondents in remitting the outstanding loan amounts to the petitioner, a statutory demand notice dated 20.03.2023, under Section 13(2) of the SARFAESI Act, 2002, was issued by the petitioner. However, the respondents failed to settle the entire amount of the outstanding dues under the loan agreement.

8. Thereafter, the respondents were classified as a ‘Non-Performing Asset’ (NPA) on 29.09.2023. Subsequently, another statutory demand notice dated 10.10.2023 under Section 13(2) of the SARFAESI Act, 2002 was issued by the petitioner but the outstanding loan amounts remained unpaid by the respondents.

9. Disputes between the parties have arisen on account of the respondent defaulting to make payments under the abovesaid loan agreements (‘event of default’), for which a demand notice dated 01.11.2023 was sent by the petitioner. However, the respondents failed to respond to the same as well. Disputes having arisen, a notice invoking arbitration dated 10.01.2024 was issued by the petitioner to all the respondents; nominating a sole arbitrator to adjudicate the disputes between the parties.

10. The arbitration clause contained in Clause 23.16 of the loan agreement-I reads as under:- “All claims or disputes arising out of or in relation to this agreement shall be settled by arbitration. The arbitration tribunal consisting of a sole arbitrator to be appointed by ABFL. All parties to this agreement hereby expressly consent to ABFL being the sole appointing authority Any vacancy created in the arbitration tribunal, for any reason whatsoever, shall also be filled only by ABFL acting as the sole appointing authority. Only a former judge of any High Court or the Supreme Court will be eligible to act as an arbitrator under this clause. The place of arbitration shall be Mumbai. Parties agree that the Courts in Mumbai shall have the exclusive jurisdiction to exercise all powers under the Arbitration & Conciliation Act, 1996

11. An identical arbitration clause is contained in the loan agreement-II and loan agreement-III and reads as under:-.” “All claims or disputes arising out of or in relation to this Agreement shall be settled by arbitration. The arbitration tribunal shall consist of a sole arbitrator to be appointed by Lender. All parties to this agreement hereby expressly consent to lender being the sole appointing authority. Any vacancy created in the arbitration tribunal, for any reason whatsoever, shall also be filled only by lender acting as the sole appointing authority. The place of arbitration shall be Delhi. Parties agree that the Courts in Delhi shall have the exclusive jurisdiction to exercise all powers under the Arbitration and Conciliation Act,

12. A perusal of the aforesaid arbitration clauses clearly reflects that the seat of arbitration in the loan agreement-I is Mumbai whereas the seat of arbitration in the loan agreements -II and III is Delhi. During the course of proceedings, the learned counsel for the petitioner submits that only disputes arising pursuant to, or in relation to loan agreements II and III are sought to be referred to arbitration. Admittedly, Delhi has been chosen as the seat of arbitration in respect of disputes arising under or “in relation to” these agreements.. Notwithstanding anything contained hereinabove, in the event the legal status of the facility provider changes or in the event of the law being made or amended so as to bring the facility provider under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the “DRT Act”), to proceed to recover dues from the borrower(s) under the DRT Act, the arbitration provisions hereinbefore contained shall, at the option of the facility provider, cease to have any effect and if arbitration proceedings are commenced but no arbitral award is made, then at the option of the Facility Provider such proceedings shall stand terminated and the mandate of the arbitrator shall come to an end from the date of the making of the law or the date when amendment becomes effective or the date when the facility provider exercises the option of terminating the mandate of arbitrator, as the case may be. Provided that neither a change in the legal status of the Facility Provider nor a change in law as referred to in this sub paragraph above, will result in invalidating an existing award passed by an arbitral tribunal constituted pursuant to the provisions of this agreement.”

13. Learned counsel for the respondents does not dispute the existence of the arbitration agreements incorporated in the loan agreements II and III, as relied upon by the petitioner, and accedes to the appointment of an independent Sole Arbitrator by this Court, to adjudicate the disputes between the parties.

14. In these circumstances, since the existence of the arbitration clause is evident from a perusal of the loan agreements, there is no impediment to constituting an arbitral tribunal for adjudicating the disputes between the parties, as mandated in terms of the judgments of the Supreme Court in SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 INSC 532 and Interplay between Arbitration Agreements under the Arbitration & Conciliation Act, 1996 & the Indian Stamp Act, 1899, In re, 2023 SCC OnLine SC 1666.