I. Case Reference
| Case Citation | : | (2021) ibclaw.in 209 HC |
| Case Name | : | Tata Capital Financial Services Ltd. Vs. M/s. Balaji Digital Solution Pvt. Ltd. & Ors. |
| Appeal No. | : | Commercial Arbitration Application (L) No. 7699 of 2020 |
| Judgment Date | : | 14-Sep-21 |
| Court/Bench | : | High Court of Bombay |
| Present for Petitioner(s) | : | Mr. Ranjeev Carvalho a/w. Sanaya Dadachanji & Shantanu Ray i/b. M/s. Manilal Kher Ambalal & Co for the Applicant. |
| Present for Respondent(s) | : | Mr. Rahul Totala a/w. Ashwin Poojari for the Respondent Nos. 2 & 3. |
| Coram | : | Mr. Justice BP Colabawalla |
| Original Judgment | : | Download |
II. Full text of the judgment
P. C.:
1. The above Arbitration Application has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 (for short “ the Arbitration Act”) seeking the appointment of a Sole Arbitrator to adjudicate the disputes and differences between the Applicant and the Respondents arising out of the 1) Channel Finance Agreement dated 18th December, 2013, 15th June, 2015, 24th February, 2016 and 23rd June, 2017 (Exhibits A1 to A5 to the Application) 2) Letters of Guarantee dated 18th December, 2013, 18th June, 2015, 26th February, 2016 and 23rd June, 2017 (Exhibits B1 to B4 to the Application) which are executed to secure dues payable by Respondent No.1. The learned advocate appearing on behalf of the Applicant stated that the present Application is not pressed against Respondent No.1 as proceedings under Insolvency and Bankruptcy Code, 2016 have been initiated against it and there is a moratorium in effect from 6th July, 2021. He however, presses the present Application against Respondent Nos. 2 & 3 who are sued in their capacity as guarantors.
2. The learned advocate appearing on behalf of the Applicant took me through four letters of guarantee that have been executed by Respondent Nos. 2 & 3, last of which is dated 23rd June, 2017 and can be found at Exhibit B4 (page 245 of the Paper book). The Arbitration Agreement is reflected in Clause 29 of the said Letter of Guarantee which reads thus:
“29. In the event of any dispute or differences or claims arising directly or indirectly out of this Guarantee or in relation to any other documents executed in connection with the Facility or otherwise, the Parties undertake to use all reasonable endeavours to resolve such disputes amicably. If disputes and differences and/or claims cannot be settled amicably, then all disputes and differences and/or claims arising between the Parties hereto in connection with this Guarantee or the interpretation hereof or anything done or omitted to be done pursuant hereto or the performance or non-performance of this Guarantee shall be referred to arbitration. Such disputes, differences and/or claims arising out of these presents or as to the construction, meaning or effect hereof or as to the rights and liabilities of the parties hereunder shall be settled by arbitration to be held at Mumbai in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any statutory amendments thereof or any statute enacted for replacement thereof and shall be referred to a sole arbitrator to be appointed by TCFSL (hereinafter referred to as “Arbitrator”) and the Arbitrator’s award shall be final and binding on both the Parties hereto. The Parties agree to have their dispute resolved by fast track procedure specified specified in Section 29B of the Arbitration and Conciliation Act, 1996. The arbitration shall be held in Mumbai and the expenses of the arbitration shall be borne by the Borrower. In the event of death, refusal, neglect, inability or incapability of the person so appointed to act as an Arbitrator, TCFSL shall appoint a new Arbitrator. The award including interim award/s of the arbitration shall be final, conclusive and binding on all parties concerned.
Notwithstanding anything contained hereinabove, in the event due to any change in the legal status of TCFSL or due to any change or amendment in law or notification being issued by the Central Government or otherwise, TCFSL comes under the purview of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) or the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the “DRT Act”), which enables TCFSL to enforce the security under the SARFAESI Act or proceed to recover dues from the Guarantor under the SARFAESI Act and/or the DRT Act, the arbitration proceedings are commenced but no award is made, then at the option of TCFSL such proceedings shall stand terminated and the mandate of the arbitrator shall come to an end from the date when such law or its change/amendment or the notification, becomes effective or the date when TCFSL exercise its option of terminating the mandate of arbitrator, as the case may be. Provided that neither a change in the legal status of TCFSL nor a change/amendment in law or issuance of notification as referred to in this sub paragraph above, will result in invalidating an existing award passed by an Arbitrator pursuant to the provisions of this Guarantee.”
3. The learned advocate appearing on behalf of the Applicant submitted that there are huge outstanding dues payable by Respondent No.1 (Principal Borrower) to the Applicant. It is in these circumstances, that the guarantees given by Respondent Nos. 2 & 3 are invoked alongwith the Arbitration Clause, as reflected in the letter of the Applicant dated 22nd November, 2019 (on page 276 of the paper book). Despite the invocation, no payment is forthcoming and hence the present Application is filed under Section 11 of the Arbitration Act seeking the appointment of a Sole Arbitrator.
4. Respondent Nos. 2 & 3 are represented by an advocate and have filed a scanned copy of an Affidavit-in-Reply dated 13th September, 2021 opposing the above Section 11 Application. The learned advocate for Respondent Nos. 2 & 3 has stated that the Original Affidavit is on its way from Delhi & shall be filed in this Court, as & when received.
5. Notwithstanding what is stated in the said affidavit, the learned advocate appearing on behalf of Respondent Nos. 2 & 3 opposed the Section 11 Application only on two grounds which are hereunder:
(i) There was a Settlement Agreement dated 14th January, 2020 entered into between the Applicant and the Respondent Nos. 2 & 3 which supersedes all the agreements including the Letters of Guarantee. Since, all the agreements and the Letters of Guarantee are superseded by the settlement Agreement, the matter cannot be referred to the Arbitration as there is no Arbitration clause in the Settlement Agreement dated 14th January, 2020. To put in other words, it was argued that all the agreements including the Letters of Guarantee perish by virtue of the settlement Agreement and hence the Arbitration clause also perishes alongwith those agreements.
(ii) The Arbitration clause as contained in the Letter of Guarantee dated 23rd June, 2017 (reproduced above) does not survive as the Applicant has already initiated and opted for enforcing its security under the provisions of SARFAESI Act. It was the submission of the learned advocate, that on proper construction of this clause, once the SARFAESI proceedings are initiated, the Arbitration clause perishes.
6. After the matter was argued for sometime, the learned advocate appearing on behalf of Respondent Nos. 2 & 3, on instructions, agreed that the Arbitral Tribunal can be constituted and all points/arguments would be raised by Respondent Nos. 2 &3 before the Arbitral Tribunal by filing an appropriate Application. The learned advocate appearing on behalf of the Applicant also had no objection to this course of action being adopted by the Court.
7. In these circumstances, the following order is passed:
(a) By consent, Mr. Abhishek Bhandang, an advocate of this Court, having office at 17th Floor, Ramnimi Building, Near Yatdani Bakery, Mumbai – 400 001, Email: bhadangabhishek@gmail.com Tel: 022 22820569, is hereby appointed to act as a Sole Arbitrator to decide upon the disputes and differences between the Applicant and the Respondents arising out of and/or in connection with and/ or in relation to the Letter of Guarantee dated 23rd June, 2017.
(b) A copy of this order will be communicated to the learned Sole Arbitrator by the advocates for the Applicant within a period of one week from today.
(c) The learned Sole Arbitrator is requested to forward his Statement of Disclosure under Section 11 (8) read with Section 12 (1) of the Arbitration Act to the advocates for the Applicant so as to enable them to file the same in the Registry of this Court. The Registry of this Court shall retain the said Statement on the file of this application and a copy of the same shall be furnished by the advocates for the Applicant to the advocates for the Respondents.
(d) The parties shall appear before the learned Sole Arbitrator on such date and at such place as he nominates to obtain appropriate directions with regard to fixing a schedule for completing pleadings etc. The Arbitral Tribunal shall give all further directions with reference to the arbitration and also as to how it is to proceed.
(e) Contact and communication particulars shall be provided by both sides to the learned Sole Arbitrator within a period of one week from today. This information shall include a valid and functional email address as well as mobile numbers of the respective advocates.
(f) The Respondents are at liberty to raise all questions of jurisdiction including with reference to the existence of the Arbitration Agreement, within meaning of Section 16 of the Arbitration Act. All contentions in that regard are expressly kept open on both sides.
(g) If any Application is made before the Arbitral Tribunal under Section 16, the Arbitral Tribunal shall decide the same on its own merits and in accordance with law.
(h) The Applicant is at liberty to file an Application under Section 17 of the Arbitration Act before the Arbitral Tribunal seeking interim measures of protection. If such an Application is filed, the same shall be decided on its own merits and in accordance with law.
(i) All the Arbitral costs and fees of the Arbitration will be borne by the Applicant on the one hand and Respondent Nos. 2 & 3 on the other, equally and will be subject to the final Award that may be passed by the Tribunal.
(j) The parties immediately consent to a further extension of up to six months to complete the Arbitration should the learned Sole Arbitrator find it necessary.
(k) The parties have agreed that the venue and seat of the arbitration will be in Mumbai.
8. It is needless to clarify that the Applicant shall be at liberty to file a separate Application under Section 11 against Respondent No.1 as and when the moratorium is lifted and it is permitted to proceed against Respondent No.1.
9. All parties to act on an authenticated copy of this order digitally signed by the Personal Assistant /Private Secretary/Associate of this Court.
(B. P. COLABAWALLA, J.)
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