Anand Rathi Global Finance Limited v. Amar Greengrass Healthcare and Diagnostics Private Limited

1. The present petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 (the 1996 Act) by the petitioner, seeking appointment of an Arbitrator, to adjudicate upon the disputes that have arisen between the parties under the Loan Agreement dated 30.12.2022.

2. The facts of the present case indicate that the petitioner is a company holding a valid license to carry on business as a Non-Banking Financial Company (NBFC), engaged in the business of lending for commercial purposes, including but not limited to working capital loans, business loans, and loans against property, among other financial products. It is further submitted that respondent No.1, as the borrower, respondent No.2 as the coborrower/mortgagor, and respondent No.3 as the co-borrower, approached the petitioner for availing a business loan/working capital facility. Pursuant thereto, the petitioner sanctioned a loan of Rs. 1,49,50,000/- vide sanction letter dated 30.12.2022. Subsequently, respondent No.1, as the borrower, executed a Loan Agreement bearing Loan Account No. APPL00003797 dated 30.12.2022 with the petitioner, on the terms and conditions set out therein. Respondents No.2 and 3 executed the said agreement independently as co-borrowers and agreed to jointly and severally repay the said loan in equated monthly installments (EMIs) in accordance with the terms of the loan agreement.

3. It is the case of the petitioner that, after availing the financial assistance, the respondents repaid the loan for 19 EMIs; however, thereafter, the respondents became highly irregular in the payment of the loan and have failed and/or avoided adhering to the terms of repayment under the said loan agreement. Consequently, they have defaulted and neglected to pay various EMIs, thereby committing a breach of the loan agreement and becoming liable to repay the entire loan amount along with interest thereon, as well as other charges, to the petitioner. It is further submitted on behalf of the petitioner that, despite various requests and reminders, the respondents have failed to comply with the demands made. Therefore, the petitioner issued a Loan Recall Notice dated 07.10.2024, calling upon the respondents to repay the total outstanding amount of Rs. 1,47,00,356/- as on 07.10.2024, along with applicable interest, costs, and expenses. After the issuance of the Loan Recall Notice, the respondents deliberately failed and/or neglected to repay the said outstanding amount to the petitioner.

4. Thereafter, the petitioner issued a Legal Notice dated 10.02.2025 under Section 21 of A&C Act, 1996 invoking an arbitration clause (Clause 32.4) of Loan Agreement dated 30.12.2022, seeking the appointment of a Sole Arbitrator.

5. The Court takes note of Clause 32.[4] of the Loan Agreement dated 30.12.2022, which reads as under:-

NCR Delhi

6. The law with respect to the scope and standard of judicial scrutiny under Section 11(6) of the 1996 Act has been fairly well settled. This Court as well in the order dated 24.04.2025 in the case of ARB.P. 145/2025 titled as Pradhaan Air Express Pvt Ltd v. Air Works India Engineering Pvt Ltd has extensively dealt with the scope of interference at the stage of Section

11. The Court held as under:- “9. The law with respect to the scope and standard of judicial scrutiny under Section 11(6) of the 1996 Act has been fairly well settled. The Supreme Court in the case of SBI General Insurance Co. Ltd. v. Krish Spinning[1], while considering all earlier pronouncements including the Constitutional Bench decision of seven judges in the case of Interplay between Arbitration Agreements under the Arbitration & Conciliation Act, 1996 & the Indian Stamp Act, 1899, In re 2 has held that scope of inquiry at the stage of appointment of an Arbitrator is limited to the extent of prima facie existence of the arbitration agreement and nothing else.

10. It has unequivocally been held in paragraph no.114 in the case of SBI General Insurance Co. Ltd that observations made in Vidya Drolia v. Durga Trading Corpn.3, and adopted in NTPC Ltd. v. SPML Infra Ltd.,[4] that the jurisdiction of the referral court when dealing with the issue of “accord and satisfaction” under Section 11 extends to weeding out ex-facie non-arbitrable and frivolous disputes would not apply after the decision of Re: Interplay. The abovenoted paragraph no.114 in the case of SBI General Insurance Co. Ltd reads as under:-

11. Ex-facie frivolity and dishonesty are the issues, which have been held to be within the scope of the Arbitral Tribunal which is equally capable of deciding upon the appreciation of evidence adduced by the parties. While considering the aforesaid pronouncements of the Supreme Court, the Supreme Court in the case of Goqii Technologies (P) Ltd. v. Sokrati Technologies (P) Ltd.5, however, has held that the referral Courts under Section 11 must not be misused by one party in order to force other parties to the arbitration agreement to participate in a time- 2024 SCC OnLine SC 1754 2 2023 SCC OnLine SC 1666. consuming and costly arbitration process. Few instances have been delineated such as, the adjudication of a non-existent and malafide claim through arbitration. The Court, however, in order to balance the limited scope of judicial interference of the referral Court with the interest of the parties who might be constrained to participate in the arbitration proceedings, has held that the Arbitral Tribunal eventually may direct that the costs of the arbitration shall be borne by the party which the Arbitral Tribunal finds to have abused the process of law and caused unnecessary harassment to the other parties to the arbitration.

12. It is thus seen that the Supreme Court has deferred the adjudication of aspects relating to frivolous, non-existent and malafide claims from the referral stage till the arbitration proceedings eventually come to an end. The relevant extracts of Goqii Technologies (P) Ltd. reads as under:-

13. In view of the aforesaid, the scope at the stage of Section 11 proceedings is akin to the eye of the needle test and is limited to the extent of finding a prima facie existence of the arbitration agreement and nothing beyond it. The jurisdictional contours of the referral Court, as meticulously delineated under the 1996 Act and further crystallised through a consistent line of authoritative pronouncements by the Supreme Court, are unequivocally confined to a prima facie examination of the existence of an arbitration agreement. These boundaries are not merely procedural safeguards but fundamental to upholding the autonomy of the arbitral process. Any transgression beyond this limited judicial threshold would not only contravene the legislative intent enshrined in Section 8 and Section 11 of the 1996 Act but also risk undermining the sanctity and efficiency of arbitration as a preferred mode of dispute resolution. The referral Court must, therefore, exercise restraint and refrain from venturing into the merits of the dispute or adjudicating issues that fall squarely within the jurisdictional domain of the arbitral tribunal. It is thus seen that the scope of enquiry at the referral stage is conservative in nature. A similar view has also been expressed by the Supreme Court in the case of Ajay Madhusudan Patel v. Jyotrindra S. Patel”6.