CLIX CAPITAL SERVICES PVT LTD v. SH RAJENDRA PRASAD SINGH

2. The facts of the case indicate that the Petitioner’s Original Lending Company sanctioned the medical equipment term loan amounting to Rs.1,93,00,000/- vide sanction letter dated 21.11.2017. Pursuant thereto, on the same date, the Respondents executed an Unattested Deed of Hypothecation and Loan Agreement in favour of Original Lending Company, and thereafter, the loan was disbursed.

3. It is the case of the Petitioner that the Respondents failed to keep their fiscal promise and thereafter, in December, 2020, a request was made for restructuring the same. It is thereafter, the restructuring loan amount of Rs. 1,46,90,403/- was sanctioned by a new loan agreement.

4. It is also the case of the Petitioner that even thereafter, the Respondents failed to adhere to the fiscal discipline and accordingly, the Petitioner issued a termination letter of loan facility dated 11.04.2022 wherein the Respondents were called upon to make the outstanding amount of Rs.1,66,39,969/-.

5. Furthermore, according to the petitioner, since the same was further not honoured, the Petitioner, thereafter initiated the arbitration proceedings by invocation notice under Section 21 of the Act dated 31.05.2022.

6. Under these circumstances, the Petitioner has approached this Court.

7. Learned counsel for the Respondents submit that there is possibility of amicable settlement. He however, does not seem to have any objection to the appointment of the Arbitrator, subject to reserving all his rights and contentions.

8. Learned Counsel for the Petitioner points out from Clause 8.7.[1] and 8.7.[2] of the loan agreement dated 27.11.2017 that there exists an arbitration clause. The same is extracted as under: “8.7.[1] In case of any dispute arising out of or in relation to the Transaction Documents, the Party shall settle the dispute through arbitration under the Indian Arbitration and Conciliation Act, 1996 (amendments thereto). The arbitration shall be referred to a sole arbitrator appointed by the Lender. The venue of arbitration proceedings shall be New Delhi, India. All proceedings shall be in English. 8.7.[2] The award of the arbitrator shall be final and binding on the Parties and the expenses of the arbitration shall be borne in such manner as the arbitrator may determine.”

9. The law with respect to the scope and standard of judicial scrutiny under Section 11(6) of the Act has been fairly well settled. This Court in Pradhaan Air Express Pvt Ltd v. Air Works India Engineering Pvt Ltd[1], as well, has extensively dealt with the scope of interference at the stage of Section 11. Furthermore, this Court, recently, in Axis Finance Limited Vs. Mr. Agam Ishwar Trimbak[2] has held that the scope of inquiry under Section 11 of the Act has been limited to a prima facie examination of the existence of an arbitration agreement. Further, it was also reiterated that the Objections relating to the arbitrability of disputes are not to be entertained by a referral Court acting under Section 8 or 11 of the Act. The relevant extract of the aforesaid decision reads as under: -

19. In In Re: Interplay, the Supreme Court confined the analysis under Section 11 of the Act to the existence of an arbitration agreement and under Section 8 of the Act to the existence and validity of an arbitration agreement. Under both the provisions, examination was to be made at the touchstone of Section 7 of the Act. Further, issues pertaining to the arbitrability of the dispute fell outside the scope of both Section 11(6A) and Section 8 of the Act. The material part of the judgement of the Supreme Court in In Re: Interplay reads as under:

164. The 2015 Amendment Act has laid down different parameters for judicial review under Section 8 and Section 11. Where Section 8 requires the referral Court to look into the prima facie existence of a valid arbitration agreement. Section 11 confines the Court’s jurisdiction to the examination of the 2025 SCC OnLine Del 3022 2025:DHC:7477 existence of an arbitration agreement. Although the object and purpose behind both Sections 8 and 11 is to compel parties to abide by their contractual understanding, the scope of power of the referral Courts under the said provisions is intended to be different. The same is also evident from the fact that Section 37 of the Arbitration Act allows an appeal from the order of an arbitral tribunal refusing to refer the parties to arbitration under Section 8, but not from Section 11. Thus, the 2015 Amendment Act has legislatively overruled the dictum of Patel Engineering (supra) where it was held that Section 8 and Section 11 are complementary in nature. Accordingly, the two provisions cannot be read as laying down a similar standard. 165. The legislature confined the scope of reference under Section 11(6A) to the examination of the existence of an arbitration agreement. The use of the term “examination” in itself connotes that the scope of the power is limited to a prima facie determination. Since the Arbitration Act is a self-contained code, the requirement of “existence” of an arbitration agreement draws effect from Section 7 of the Arbitration Act. In Duro Felguera (supra), this Court held that the referral Courts only need to consider one aspect to determine the existence of an arbitration agreement – whether the underlying contract contains an arbitration agreement which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. Therefore, the scope of examination under Section 11(6A) should be confined to the existence of an arbitration agreement on the basis of Section 7Similarly, the validity of an arbitration agreement, in view of Section 7, should be restricted to the requirement of formal validity such as the requirement that the agreement be in writing. This interpretation also gives true effect to the doctrine of competence-competence by leaving the issue of substantive existence and validity of an arbitration agreement to be decided by arbitral tribunal under Section 16. We accordingly clarify the position of law laid down in Vidya Drolia (supra) in the context of Section 8 and Section 11 of the Arbitration Act.

166. The burden of proving the existence of arbitration agreement generally lies on the party seeking to rely on such agreement. In jurisdictions such as India, which accept the doctrine of competencecompetence, only prima facie proof of the existence of an arbitration agreement must be adduced before the referral Court. The referral Court is not the appropriate forum to conduct a minitrial by allowing the parties to adduce the evidence in regard to the existence or validity of an arbitration agreement. The determination of the existence and validity of an arbitration agreement on the basis of evidence ought to be left to the arbitral tribunal. This position of law can also be gauged from the plain language of the statute. 167. Section 11(6A) uses the expression “examination of the existence of an arbitration agreement.” The purport of using the word “examination” connotes that the legislature intends that the referral Court has to inspect or scrutinize the dealings between the parties for the existence of an arbitration agreement. Moreover, the expression “examination” does not connote or imply a laborious or contested inquiry. On the other hand, Section 16 provides that the arbitral tribunal can “rule” on its jurisdiction, including the existence and validity of an arbitration agreement. A “ruling” connotes adjudication of disputes after admitting evidence from the parties. Therefore, it is evident that the referral Court is only required to examine the existence of arbitration agreements, whereas the arbitral tribunal ought to rule on its jurisdiction, including the issues pertaining to the existence and validity of an arbitration agreement. A similar view was adopted by this Court in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd.” [Emphasis supplied]

20. The effect of In Re: Interplay was further explained by a Three Judge Bench of the Supreme Court in SBI General Insurance Co. Ltd. v. Krish Spinning[3] wherein the Court declared Vidya Drolia and NTPC Ltd.’s findings qua scope of inquiry under Section 8 and Section 11 of the Act to no longer be compatible with modern principles of arbitration. The material portions of the judgement read as under:

2024 SCC OnLine SC 1754 conformity with the principles of modern arbitration which place arbitral autonomy and judicial non-interference on the highest pedestal.” [Emphasis supplied]

21. Similarly, in BGM and M-RPL-JMCT (JV) v. Eastern Coalfields Ltd[4] the Supreme Court succinctly explained the effect of In Re: Interplay on a Referral Court’s powers under Section 11 of the Act. The relevant part of the judgement is as under: