Mangal Credit And Fincorp Limited vs Naviya Technologies Renewables Project Limited & Ors.

By the present Application filed under Section 11 of the Arbitration and Conciliation Act, 1996, the Applicant is seeking appointment of an Arbitrator under Clause 8.2 of the Loan Agreement. The Applicant seeks to refer the disputes and differences between the parties arising out of the Loan Agreement dated 3 May 2024 to arbitration.

According to the Applicant, Respondent Nos.1 to 4 approached the Applicant for a Working Capital Term Loan of Rs.50,00,000/- (Rupees Fifty Lakhs Only) for business purposes. After considering the loan application and the representations and information given by the Respondents, the Applicant sanctioned the loan and the parties entered into the Loan Agreement dated 3 May 2024. In connection with the loan so availed, Respondent No.1 executed various documents in favour of the Applicant, including the Loan Agreement, Demand Promissory Note and Letter of Continuity for Demand Promissory Note. The loan amount under the said Loan Agreement was approved and disbursed on 3 May 2024 into Bank Account No. 50200085686884 of Naviya Technologies Renewables Private Limited maintained with HDFC Bank, Mumbai. According to the Applicant, Respondent Nos.1 to 4 paid only a few instalments and committed defaults in repayment. The Applicant issued a Loan Recall Notice dated 15 April 2026, recalling the entire outstanding loan amount together with interest and other charges. According to the Applicant, a total amount of Rs.69,54,705/- (Rupees Sixty Nine Lakhs Fifty Four Thousand Seven Hundred Five Only) was due and payable by Respondent Nos.1 to 4 as on 15 April 2026. The Applicant states that Respondent Nos.1 to 4 did not reply to the said Loan Recall Notice dated 15 April 2026. According to the Applicant, this showed that the Respondents had not taken steps to repay the outstanding amount. The Applicant invoked the arbitration clause by issuing a notice under Section 21 of the Arbitration and Conciliation Act, 1996. The notice was dated 21 May 2026 and the Applicant suggested the name of Ms. Karishma Rao as the Arbitrator and called upon the Respondents to communicate their concurrence within 14 days. The Applicant has filed the present Application. Clause 8.2 of the Loan Agreement dated 3 May 2024 contains the arbitration agreement between the parties. The Applicant submits that the Loan Agreement dated 3 May 2024 was executed and signed by both sides. Clause 8.2 provides that if any dispute or difference arises between the parties, the same is required to be referred to a Sole Arbitrator.

Mr. Jain, learned Advocate appearing for the Applicant, submits that Arbitration Case No.3 of 2025 was initially filed with reference to an incorrectly mentioned Loan Account No.9210103001593. The said proceedings were withdrawn with liberty to the Applicant to initiate fresh proceedings. According to the Applicant, the withdrawal was necessary as certain corrections were required to be made in the Amount of Reference Notice. It is submitted that Arbitration Case No.84 of 2025 was filed before the same Sole Arbitrator in respect of the same transaction and the same Loan Agreement. In that proceeding, the loan account number was inadvertently mentioned as 9210103001593. On subsequently noticing that the said loan account number was incorrect and did not correspond with the actual Loan Agreement, the Applicant withdrew Arbitration Case No.84 of 2025 with liberty to initiate fresh proceedings in accordance with law. It is submitted that after withdrawal of the earlier proceedings, no arbitral proceeding arising from those references is pending before the said Sole Arbitrator. It is submitted that the appointment of the said Sole Arbitrator was made unilaterally by the Applicant and was bad in law. According to the Applicant, such unilateral appointment was contrary to the settled legal position and the recent judgments concerning appointment of Arbitrators. It is submitted that the appointment did not continue and was void from the beginning.

It is submitted that Respondent No.2 is incorrect in contending that the Applicant is trying to continue, revive or duplicate the earlier arbitral proceedings. According to the Applicant, those proceedings were withdrawn and discontinued. The present proceedings have been filed afresh and in accordance with law. It is submitted that the incorrect mention of Loan Account No.9210103001593 in the earlier Loan or Reference Notice does not change the fact that the Loan Agreement forming the basis of the Applicant's claim is Loan Agreement No.9210103001543. The said Loan Agreement is placed on record before this Court.

Learned Advocate appearing for the Respondents submits that the Applicant had earlier invoked arbitration against the Respondents in relation to Loan Agreement No.9210103001593. Pursuant thereto, two arbitration proceedings were initiated, namely:

It is submitted that the present Application under Section 11 of the Arbitration and Conciliation Act, 1996 is barred by the principles relating to abandonment of proceedings. Reliance is placed upon the judgment of the Supreme Court in Rajiv Gaddh v. Subodh Parkash, 2026 INSC 302. According to the Respondents, the Supreme Court has held that where a party abandons an earlier arbitration proceeding and seeks to commence a fresh proceeding on the same cause of action, the principles underlying Order XXIII Rule 1 of the Code of Civil Procedure, 1908 would apply. It is submitted that a subsequent Application under Section 11 based on the same cause of action would not be maintainable where the earlier proceedings were abandoned without obtaining liberty to commence fresh proceedings.

It is submitted that, even assuming that the Applicant has any grievance regarding the existing Sole Arbitrator or his mandate, the proper remedy available to the Applicant would be to seek substitution of the Arbitrator under Section 15(2) of the Arbitration and Conciliation Act, 1996. According to the Respondents, the Applicant cannot instead file a fresh Application under Section 11 of the Act. It is submitted that termination of the mandate of an Arbitrator does not bring the arbitral proceedings to an end. In such a situation, a vacancy is created in the office of the Arbitrator and such vacancy is required to be filled in accordance with Section 15(2) of the Arbitration and Conciliation Act, 1996. Therefore, according to the Respondents, the Applicant cannot avoid the statutory procedure for substitution of the Arbitrator by seeking appointment of a fresh Arbitrator under Section 11 of the Act.

On these grounds, it is submitted that the present Application concerns the same underlying transaction and the same cause of action in respect of which arbitration proceedings had been initiated. According to the Respondents, the Applicant having earlier invoked arbitration cannot now maintain a fresh Application under Section 11. The present Application is submitted to be not maintainable and liable to be dismissed.

I have considered the submissions made by the learned Advocates for both sides and the judgments relied upon by them. The question is whether the Applicant, after starting two earlier arbitration proceedings relating to the same transaction, can again maintain the present Application under Section 11 of the Arbitration and Conciliation Act, 1996. The other question is whether the Applicant is required to seek substitution of the earlier Sole Arbitrator under Section 15(2), as submitted by the Respondents.

There is no dispute that the parties had entered into the Loan Agreement dated 3 May 2024. Clause 8.2 of the said Agreement contains the arbitration agreement. It provides that disputes arising from the Agreement "shall be referred to a Sole Arbitrator duly appointed by the Lender." It provides that Mumbai shall be the seat of arbitration. Thus, existence of the arbitration agreement between the parties is not in dispute. The objection of the Respondents is about the earlier arbitration proceedings and whether the Applicant can now seek appointment of an Arbitrator again.

The Respondents rely upon the two earlier proceedings, namely Arbitration Case No.3 of 2025 and Arbitration Case No.84 of 2025. It is not disputed that both proceedings were between the same parties and related to the same transaction. It is not disputed that the same Sole Arbitrator was appointed in both proceedings. Therefore, the matter cannot be decided only because a different account number is mentioned in the present Application or because a fresh Arbitrator is now sought. It is necessary to see what happened to the earlier proceedings and whether those proceedings are still having any legal existence. According to the Applicant, Arbitration Case No.3 of 2025 was filed by mentioning an incorrect Loan Account Number. That proceeding was withdrawn with liberty to take fresh proceedings. It is stated that Arbitration Case No.84 of 2025 was filed in respect of the same transaction, but again the same incorrect loan account number was mentioned. After the Applicant noticed the mistake, that proceeding was withdrawn with liberty to take fresh proceedings in accordance with law. The Respondents rely upon these earlier proceedings. However, no material has been placed before this Court to show that either of these proceedings is still pending. Therefore, the submission of the Applicant that both the earlier proceedings stood withdrawn has to be accepted.

The withdrawal of the earlier proceedings has to be considered along with the liberty granted while withdrawing them. This is important because the Respondents rely upon the principle contained in Order XXIII Rule 1 of the Code of Civil Procedure, 1908. The Supreme Court in Rajiv Gaddh, has held that the principles of Order XXIII Rule 1 can apply to a later application under Section 11. However, the facts before the Supreme Court were of a case where the earlier proceeding had been abandoned and no liberty had been obtained to institute a fresh proceeding. In paragraph 15 of Rajiv Gaddh, the Supreme Court has held as follows:

The important words in the above paragraph are "without leave of the court" and "in the absence of any liberty". Thus, the Supreme Court has not held that every withdrawal of an earlier proceeding under Section 11 will prevent a party from filing another application. The bar applies where the earlier proceeding relating to the same cause of action was withdrawn without obtaining liberty to take fresh proceedings.

The same judgment makes it clear that abandonment of a proceeding cannot be presumed. In paragraph 16, the Supreme Court has observed:

This principle is relevant in the present matter. The conduct of the party has to be considered from the whole record. Merely because an earlier proceeding has come to an end, it cannot by mean that the party has given up the claim. The Supreme Court in Dani Wooltex Corporation v. Sheil Properties Pvt. Ltd., (2024) 7 SCC 1, has held that abandonment cannot be readily inferred and the conduct must show that the party had actually given up the claim.

The facts of Rajiv Gaddh are different from the facts of the present case. In that case, the Supreme Court found actual abandonment from the conduct of the claimant. In paragraph 17, the claimant had informed the Arbitrator that he would not participate in the proceedings and did not participate. The Supreme Court found that the proceeding had been abandoned. In the present case, the Applicant did not stop appearing before the Arbitrator. The Applicant withdrew the proceedings and the withdrawal was with liberty to commence fresh proceedings.

The Respondents submit that the Applicant is trying to revive or duplicate the earlier arbitration proceedings. I am unable to accept this submission. The earlier proceedings were withdrawn. Once those proceedings were withdrawn and there is no pending reference before the earlier Arbitrator, there is no existing proceeding which can be revived by filing the present Application. What the Applicant is now seeking is constitution of an arbitral tribunal under the arbitration agreement contained in the Loan Agreement. Therefore, the present Application cannot be treated as an application for continuation of Arbitration Case No.3 of 2025 or Arbitration Case No.84 of 2025.

The Respondents submit that the underlying transaction and the cause of action are the same. This may be so. However, merely because the transaction is the same, the present Application cannot be rejected when the earlier proceedings were withdrawn with liberty to take fresh proceedings. The purpose of Order XXIII Rule 1 is to prevent a party from withdrawing a proceeding without leave and obtaining another opportunity to pursue the same matter. Where liberty to take fresh proceedings was granted, that principle cannot be applied mechanically.

I find that the judgment in Rajiv Gaddh does not prevent the Applicant from filing the present Application. That judgment applies to a case where the earlier proceeding was abandoned or withdrawn without liberty to institute a fresh proceeding. The present case is different because the earlier proceedings were withdrawn with liberty. Therefore, the objection raised by the Respondents under Order XXIII Rule 1 of the Code of Civil Procedure cannot be accepted.

The earlier Sole Arbitrator was appointed unilaterally by the Applicant under Clause 8.2. The Applicant submits that such unilateral appointment was not valid in law and no valid arbitral mandate could continue from the earlier proceedings. The Respondents submit that even if there was some defect in the appointment, the Applicant's remedy was to seek substitution of the Arbitrator under Section 15(2) and not to file a fresh Application under Section 11. Clause 8.2 provides that the Sole Arbitrator is to be "appointed by the Lender". On reading this clause, it is clear that the Applicant, being the Lender, has been given the power to appoint the Sole Arbitrator. The clause does not provide equal opportunity to the Respondents to participate in constitution of the arbitral tribunal or to agree upon the person who is appointed as Arbitrator.

The legal position regarding such unilateral appointment has been explained by the Supreme Court in Bhadra International (India) Pvt. Ltd. v. Airports Authority of India, 2026 SCC OnLine SC 7. In paragraph 123(i), the Supreme Court has stated:

This makes the position clear. Equality between the parties is required not only during the arbitration. It is required when the arbitral tribunal is constituted. The Supreme Court has considered the legal effect where an Arbitrator becomes ineligible under Section 12(5) read with the Seventh Schedule.

Paragraph 123(iv) of Bhadra International states:

The Supreme Court has made a distinction between a valid arbitral proceeding where subsequently the mandate of the Arbitrator comes to an end and a case where there is a legal defect in the appointment. Where the Arbitrator is ineligible by operation of law, the mandate comes to an end.

Paragraph 123(v) is relevant. It reads:

The meaning of this principle is that the authority of the Arbitrator comes from the consent of the parties through the arbitration agreement and from a valid constitution of the tribunal. An Arbitrator who does not have jurisdiction cannot get such jurisdiction merely because some proceedings have taken place before him.

In the present case, Clause 8.2 gives the Applicant unilateral power to appoint the Sole Arbitrator. The clause does not give equal participation to the Respondents in constitution of the tribunal. The Applicant now submits that the earlier appointment cannot be relied upon. The Respondents seek to treat that appointment as a continuing appointment and submit that the Applicant should seek substitution under Section 15(2). At the same time, the Respondents rely upon the earlier withdrawn proceedings to oppose the present Application. These submissions cannot be accepted together in the facts of the present case.

The submission based on Section 15(2) does not assist the Respondents. Section 15(2) applies where there is a vacancy in the office of an Arbitrator whose mandate has come to an end. It assumes that there was a existing arbitral mandate and that the arbitration proceedings are still continuing. Here, the earlier proceedings have been withdrawn. The very basis of the earlier appointment is challenged because the appointment was made unilaterally. Therefore, the present case cannot be treated as an ordinary case where an existing Arbitrator is required to be replaced because he has resigned, died, become incapable or his mandate has otherwise come to an end.

Bhadra International supports this distinction. The Supreme Court has explained that an Arbitrator who is ineligible lacks inherent jurisdiction and that the appointment is "ex facie invalid". The Court has held that where such a defect exists, an objection regarding lack of jurisdiction can be raised at any stage. Therefore, the submission that the Applicant must go back to the earlier arbitration proceeding and seek substitution cannot be accepted where there is no surviving proceeding and the earlier appointment is stated to be invalid.

I am unable to accept the submission that the Applicant is taking contradictory positions by first appointing a Sole Arbitrator and questioning that appointment. The earlier arbitration proceedings were commenced on the basis of the clause as it was understood by the Applicant at that time. The legal position has been clarified by the Supreme Court. The parties must have equal say in constitution of the arbitral tribunal and an appointment which is invalid cannot become valid merely because it was made under a clause. The present Application has to be considered in accordance with the law applicable when this Court decides the Application. It is true that the Applicant had earlier invoked arbitration and that the Respondents participated in those proceedings. It is true that several dates of hearing were fixed before the same Sole Arbitrator. These facts cannot be ignored. However, participation in an earlier proceeding by cannot remove a defect which goes to the legality of constitution of the tribunal. This is particularly so when the Supreme Court has held that where the Arbitrator is ineligible under law, the mandate comes to an end and such defect concerns the jurisdiction of the tribunal.

The submission of the Respondents that the present Application is only an attempt to give another name to the same old proceeding cannot be accepted. The Applicant is not seeking continuation of Arbitration Case No.3 of 2025 or Arbitration Case No.84 of 2025. Both those proceedings have been withdrawn. There is presently no existing arbitral tribunal before which those proceedings are continuing. The Applicant has invoked Clause 8.2 and seeks constitution of a tribunal for deciding the disputes arising from the Loan Agreement dated 3 May 2024. This is different from asking the Court to continue an arbitration proceeding which has been withdrawn.

The judgment in Rajiv Gaddh does not say that once arbitration has been invoked, a second invocation is prohibited in every situation. The Supreme Court examined whether the later application in that case was based on a different cause of action. In paragraph 19, it held:

The above finding has to be understood in the facts of that particular case. In that matter, the Supreme Court found abandonment and found that no fresh cause of action had arisen. In the present case, the Application arises from the same Loan Agreement. However, the earlier proceedings were withdrawn with liberty., the Applicant is seeking constitution of a valid arbitral tribunal in view of the legal position concerning unilateral appointment. Therefore, paragraph 19 of Rajiv Gaddh cannot be read separately from the facts of that case and applied mechanically to reject the present Application.

The Respondents are correct to the extent that a litigant cannot repeatedly file proceedings merely by changing the form of relief. The Court has to ensure that the arbitration process is not misused. However, on the material placed before this Court, the present case cannot be treated as such misuse. The earlier proceedings were withdrawn. They were not kept pending while the Applicant was simultaneously pursuing the present Application. The present proceeding is for constitution of an arbitral tribunal in accordance with law.

In the aforesaid circumstances, the present Application under Section 11 of the Act, is deserved to be disposed of in terms of the following order:

All issues on merits are expressly kept open to be agitated before the arbitral tribunal appointed hereby.

All actions required to be taken pursuant to this order shall be taken upon receipt of a downloaded copy as available on this Court’s website.