Madras High Court has laid down the conditions required to be fulfilled for applicability of Section 18 and opined that disputes pertaining to accuracy of credit information are arbitrable.
However, since the present dispute was pending before NCLT also, HC Bench observed that interim moratorium is applicable to the proceedings in which the liability of the borrower and guarantor are determined in relation to the credit facility and therefore, once NCLT adjudicates on the matter, then arbitration can be preferred by the parties.
Brief Facts
The Respondent No.2 had extended credit facility to one borrower for which the Petitioner was the personal guarantor. According to the Respondent, the loan was not actually disbursed to the said borrower. It was contended by the Petitioner that the Respondent No.1 provided false information on his website which was conveyed to him by the Respondent No.2 with regards to the Petitioner defaulting on the said loan. For the said dispute, the Petitioner has asked for the constitution of an arbitral tribunal as per Section 18 of the Credit Information Companies (Regulation) Act, 2005 (hereinafter referred to as the “2005 Act”). He has also sought the relief of appointment of arbitration as per Section 11 of the Arbitration and Conciliation Act, 1996.
Contentions of the Respondents
The Respondent No.2 contended that matters under Section 18 of the 2005 Act were outside the jurisdiction of the Court as per the bar of Section 31 of the 2005 Act and therefore, the Court did not possess jurisdiction. The Respondent No.3 contended that there was no arbitration agreement. It was further argued by the Respondents that the dispute in the present case did not come under the ambit of Section 18. Section 18 arbitration is only applicable on the disputes pertaining to the business of credit information. It was also argued by the Respondent that an interim moratorium has been triggered because of the proceedings initiated against the Petitioner before the NCLT bench and that such moratorium commenced on the date of lodging of the application under Section 95 of the Insolvency and Bankruptcy Code, 2016. It was argued that the dispute pending before the NCLT and the dispute proposed to be raised before the arbitral tribunal cannot be bifurcated.
Observations of the Court
With respect to jurisdiction, the Court observed that the very object of Section 31 of the 2005 Act is to ensure that the redressal of grievances is in accordance with what has been provided in 2005 Act. Section 18 itself provides for Arbitration and therefore, the bar of Section 31 will not apply on proceedings that are in consonance with the 2005 Act.
With respect to arbitration agreement, the Court propounded that Section 18 creates a legal fiction and therefore, imports an agreement for arbitration. The Court further observed that a cumulative fulfillment of 3 conditions is required for Section 18 to apply. Such conditions are:
- Dispute arises between credit information companies, credit institutes, borrowers and clients.
- Dispute relates to the business of credit information
- No remedy is prescribed under 2005 Act.
The Court noted that the a ‘client’ as defined includes a guarantor and therefore, Petitioner qualifies as a client. It was remarked that the dispute is between a client and the credit information company and credit institution. To determine whether the dispute is related to the business of credit information, the Court observed that such companies are engaged in the business of collection, processing and collation of credit information and provides information to its users and credit stores. On a conjoint reading of Section 14 and 19 together, it is evident that when a dispute arises between borrower/client and credit information company/credit institution with respect to accuracy or completeness of the credit information collected, processed or collated, the same qualifies a dispute relating to the business of credit information. Such dispute may be referred for Arbitration and there is no other remedy for the same.
With respect to the petition of Section 11 of the Arbitration Act, the Court observed that the contention that correction of credit information can be done via certification by the credit company can be a defense in arbitration but not a ground to contest Section 11 petition.
With respect to the contention of interim moratorium, the Court observed that such moratorium was applicable only in respect of debt or proceedings by the creditors of the debtor with respect to debt and not for recovery of a debt. A textual reading of Section 95 implied that embargo on proceedings is only in respect of creditors of the debtor and not guarantor. But, when a contextual interpretation is done, the implication was that the moratorium is applicable to proceedings for recovery of debt and to the proceedings in which the liability of the borrower and guarantor are determined in relation to the credit facility.
Observing the facts of the present case, the Court opined that the dispute is in regards to the false information provided and put up and whether such information is false or not cannot be adjudicated on by the tribunal without examining the scope of the personal guarantee and the liabilities and the same is pending before NCLT. Therefore, constituting an arbitral tribunal will be premature.
Decision of the Court
The Court therefore, propounded that once the moratorium ends and if Petitioner succeeds in the proceedings before the NCLT, they may initiate arbitration proceedings in term of section 18 of the 2005 Act. Consequently, the said petition was disposed.
Cause Title: Kirankumar Moolchand Jain v. TransUnion CIBIL Ltd. & Ors.
Citation: Arb.O.P. (Com.Div.) No. 86 of 2022
Bench: Hon’ble Mr. Justice Senthil Kumar Ramamoorthy
Decided on: October 18th, 2022
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