The single judge bench of Justice Neena Bansal Krishna of the Delhi High Court in the case of Diamond Entertainment Technologies Pvt Ltd Vs Religare Finvest Limited through its authorized officer held that SARFAESI Act does not oust the jurisdiction of the recovery by a Civil Court/DRT. Furthermore, a choice of forum continues to exist with the parties who may elect to approach the Civil Court/DRT as the case may be, or may choose to take their civil disputes for adjudication to the Arbitration. It may thus, be concluded that merely because the proceedings under the SARFAESI Act has been initiated, arbitration of disputes does not get per se barred.
BRIEF FACTS
The factual matrix of the case is that the loan agreement was executed between the parties having a loan amount of Rs 9,45,98,691/-. The instalments were to be paid by the petitioner and according to the petitioner, an excess payment was made as it has made a payment of Rs. 11,33,07,673/- against the loan amount which is in an overflow of Rs. 2,21,47,810/-. It is claimed that there was no default in the account in view of the overflow. In complete violation of the RBI rules for designating any account as an NPA, the respondent Bank declared the applicants' account as a Non-Performing Asset in an illegal and arbitrary manner. It is claimed that even though all of the payments have been made, the respondent has only included Rs. 10,01,59,512 in their statement. As a result, there is a statement of account error that costs Rs. 92,68,162 because the receipts have not been correctly displayed. Additionally, it is alleged that the respondent only paid out Rs. 9.60 crore of the total amount of Rs. 10 crore, holding back Rs. 40,00,000. Despite this, interest was charged for a period of 21 months on the entire sum.
The respondent Bank issued a Notice of Demand pursuant to Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, demanding payment of Rs. 5,72,24,893.47 as the outstanding balance amount, plus interest and charges accruing to the Loan Accounts. In response, the petitioner raised a number of issues in accordance with Section 13(3A) of the SARFAESI Act. Additionally, it is claimed that an additional sum of Rs. 1,63,12,289 has been charged as interest despite the fact that the rate of interest for the category of loan taken has been reduced in accordance with the RBI guidelines issued from time to time. Furthermore, the loan agreement also contains arbitration clause where the dispute is to be referred to the arbitration. However, the respondent refused to appoint an arbitrator by raising an objection that an arbitration award has already been made in respect of loan amount. The arbitrable disputes have arisen in respect of the Loan Agreement. Hence, the present petition has been filed seeking appointment of an independent Arbitrator.
ISSUE BEFORE THE COURT
“whether the adjudication of the disputes raised between the parties is barred before the Civil or an alternate forum once the proceedings under the SARFAESI Act has been commenced.”
COURT’S OBSERVATION
The hon’ble high court observed that the other aspect which calls for some consideration is whether the jurisdiction of RDDB (which is alternate to the Civil Court) gets barred and whether the arbitration proceedings can be initiated. The Full Bench of Delhi High Court in HDFC Bank Ltd Vs. Satpal Singh Bakshi 2012 SCC OnLine Del 4815 was confronted with this very issue and it was observed that the jurisdiction of Civil Court is barred from matters covered by the RDDB Act in the sense that instead of the recovery being sought through the Civil Court, it has to be filed before the Debt Recovery Tribunal, implying thereby that the remedy of recovery still exists. It was further explained that once the remedy of recovery remains the parties still have the freedom to choose the forum alternate to and the regular Court or DRT as the case may be for adjudicating their inter se disputes. All disputes relating to the “Right in Personam” are arbitrable and therefore, the choice is given to the parties to choose the alternative forum. A claim of money by a Bank or financial institution cannot be treated as a right in rem and thus, taking it out of the realm of arbitrability.
It is thus evident that the SARFAESI Act does not oust the jurisdiction of the recovery by a Civil Court/DRT. Furthermore, a choice of forum continues to exist with the parties who may elect to approach the Civil Court/DRT as the case may be, or may choose to take their civil disputes for adjudication to the Arbitration. It may thus, be concluded that merely because the proceedings under the SARFAESI Act has been initiated, arbitration of disputes does not get per se barred. Further, in M.D. Frozen Foods (supra) it was explained that SARFAESI proceedings are in the nature of enforcement proceedings while arbitration is an adjudicatory process. In the event that the secured assets are insufficient to satisfy the debts, the secured creditor can proceed against other assets in execution against the debtor, after the determination of the pending outstanding amount by a competent forum. Therefore, the provisions of the SARFAESI Act are a remedy in addition to the adjudication under the Arbitration and Conciliation Act, 1996 as an alternate forum to Civil Court/DRT. The objection taken on behalf of the respondent in regard to non-arbitrability of the disputes in view of the SARFAESI Act, is without merit.
CASE NAME- Diamond Entertainment Technologies Pvt Ltd Vs Religare Finvest Limited through its authorized officer
CITATION- ARB.P.62/2022
CORUM- Justice Neena Bansal Krishna
DATE-14.10.22
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