Tata Capital Limited vs Pravin Rewachand Bablani and Another

By this Arbitration Application filed under Section 11 of the Arbitration and Conciliation Act, 1996, the Applicant is asking for appointment of an Arbitrator for deciding the disputes and/or differences which have arisen between the parties out of the Loan Agreement dated 26 September 2015.

The facts and circumstances because of which the present Application has been filed are stated as follows. Sometime in or around September 2015, the Respondents approached the Applicants for getting a loan of Rs. 1,67,80,898/- as Loan Against Property under Home Equity Loan facilities. The said amount of Rs. 1,67,80,898/- was sanctioned to the Respondents on the terms and conditions mentioned in the Sanction Letter issued to them. The Respondents signed the said Sanction Letter dated 26 September 2015 and accepted the terms and conditions contained therein. The said Agreement was signed by the authorized representative of the Applicants. It is the case of the Applicants that the terms and conditions of the Agreement were explained to the Respondents. The Respondents thereafter signed the Agreement and accepted the terms and conditions mentioned in it. Under the said Agreement, it was agreed that the seat of Arbitration would be in Mumbai and that only the Courts in Mumbai would have exclusive jurisdiction for entertaining any dispute between the Applicants and the Respondents. As per the said Loan Agreement, the Applicants disbursed an amount of Rs.1,67,80,898/- to the Respondents. Under the Loan Agreement dated 26 September 2015, the Respondents agreed to repay the said loan by equated monthly installments, that is, EMI of Rs.3,68,547/-, over a period of 180 months. According to the Applicants, the Respondents failed and neglected to repay the loan amount with the agreed interest under the Agreement. It is stated that the Respondents were trying to avoid repayment of the said loan. Therefore, the non-payment of the overdue amount was treated as an event of default under Clause 11 of the Loan Agreement. Because of the above circumstances, the Applicants, through their Advocate's Notice, recalled the entire loan and called upon the Respondents to jointly and severally pay the outstanding dues. They were called upon to pay interest @ 15.80% (floating) per annum along with all other expenses, costs and charges payable under the Loan Agreement dated 26 September 2015. By the said Advocate's Notice, the Respondents were called upon to pay the outstanding amount mentioned in the Notice, along with interest @15.80% per annum, within 7 days. It was stated that if the amount was not paid, the Applicants would be required to invoke the Arbitration Clause contained in the Agreement. The said Advocate's Notice was sent by RPAD to the Respondents at the addresses mentioned in the cause title of the Arbitration Application. According to the Applicants, the Respondents duly received the said Notice.

Even after receiving the aforesaid Advocate's Notice, according to the Applicants, the Respondents neither replied to the Notice nor paid the outstanding loan amount. The Applicants therefore issued an Advocate's letter referring the dispute to Arbitration and appointed Mr. Noshir Fali Kumana to arbitrate upon the disputes between the parties. According to the Applicants, although the Respondents were served with notices of hearing, they did not remain present before the Arbitrator during the arbitration hearings., the Arbitrator passed an Arbitration Award dated 6 August 2019 against the Respondents. The Applicants, however, now say that the aforesaid Arbitration Award dated 6 August 2019 has become redundant because of the change in law declared by the Apex Court in Perkins Eastman Architect DPC & Anr V/s HSSC (India) Limited, 2019 SCC Online 1517. According to the Applicants, after the said decision, proceedings conducted before an Arbitrator who was appointed unilaterally are treated as non-est. Therefore, the Applicants have approached this Court by filing the present Arbitration Application.

Ms. Navaneetha Krishnan, learned Advocate for the Respondents, submits that the claim which the Applicant now wants to refer to arbitration is clearly and hopelessly barred by limitation. She submits that even according to the Applicant's own Arbitral Award dated 6 August 2019, the Applicant had recalled the loan and invoked the arbitration agreement contained in the Loan Agreement by its Advocate's demand notice dated 19 December 2016. Therefore, the cause of action had arisen, and the disputes had been referred to arbitration on or before 19 December 2016. Since the limitation period for referring such disputes to arbitration is three years, the said period came to an end on or around 19 December 2019. However, the present invocation of arbitration was made only on 14 November 2024, almost eight years later. Therefore, according to her, a claim which has become dead, stale and time-barred cannot now be referred to arbitration. She submits that the present Application does not properly say anything about limitation. The Applicant's own Award, which has been annexed to the Application, shows that arbitration was first invoked on 19 December 2016. However, the Application does not state when the cause of action actually arose. It does not give any explanation for the delay of almost eight years. There is no circumstance stated which could save the claim from the bar of limitation. According to her, the claim is therefore ex facie barred even from the Applicant's own pleadings and documents. The responsibility to show that the claim is within the period of limitation is upon the Applicant. According to her, the Applicant has not discharged that responsibility.

She submits that the remaining amount now claimed by the Applicant is only an alleged deficiency which remained after the secured property was sold under the SARFAESI Act. According to her, this is an unsecured personal claim against her and is governed by a limitation period of three years. It is not a claim for enforcing money secured by a mortgage over immovable property for which the twelve-year period under Article 62 of the Limitation Act, 1963 could be claimed. She submits that after the security was realised and exhausted by issuance of the Sale Certificate dated 9 September 2020, there was no mortgage over the immovable property which could thereafter be enforced. She submits that if the Applicant takes the position that the claim is for enforcement of a mortgage and therefore attracts the twelve-year period, then such claim would be an action in rem and would not be arbitrable. Therefore, according to her, on either basis the present Application is liable to be dismissed. She submits that the Applicant had invoked arbitration on 19 December 2016 and had pursued those proceedings which resulted in an ex parte Arbitral Award dated 6 August 2019 passed by an arbitrator appointed unilaterally. According to her, the said Award was never served upon the Respondents. Thereafter, the Applicants filed two Applications under Section 9 of the Act before this Court in relation to the said arbitral proceedings and the Award. Both Applications were withdrawn unconditionally. The Applicant now treats the said Award as non-est. According to her, after abandoning the first arbitration proceedings completely and unconditionally, the Applicant cannot start another and second arbitration on the same loan account and arising out of the same cause of action. She submits that the later judgment declaring the change in law does not create a new cause of action. It does not bring back a claim which had become barred by limitation. According to her, it cannot give the Applicant a new period of limitation for starting arbitration again.

She submits that the present Application suffers from suppression of material facts. According to her, the Applicant has not disclosed the date on which the loan account was classified as a Non-Performing Asset, namely 9 May 2017. The Applicant has not disclosed the Sale Certificate dated 9 September 2020, the complete and correct accounts showing appropriation of the sale proceeds, and the fact that the legality of the said sale is under challenge before the Debts Recovery Tribunal-II, Mumbai in Securitisation Application No. 143 of 2021. She submits that a person who approaches the Court without disclosing material facts and with unclean hands is not entitled to relief. She relies upon the notice dated 14 August 2017 issued by the Applicant under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. According to her, the said notice shows that the account had been classified as a Non-Performing Asset on 9 May 2017. She submits that even at the stage of considering a reference under Section 11 of the Act, this Court is not required to refer a claim which is clearly and ex facie dead on the basis of the Applicant's own pleadings and documents which are not disputed. According to her, the Court can refuse such a reference in order to remove a dead claim and prevent her from being put to the expense of a lengthy and unnecessary arbitration. Without prejudice to these submissions, she submits that if this Court nevertheless decides to make a reference, the Respondents expressly reserve and keep open all their objections, including objections relating to limitation, non-arbitrability and maintainability, to be decided by the Arbitral Tribunal.

I have considered the submissions made by the Applicants and the Respondents. The issue before the Court is not only whether there is an arbitration clause in the Loan Agreement. The Court has to see, in view of what had happened between the parties, whether the present request for appointment of an Arbitrator can now be entertained.

The Applicants first submit that there is an arbitration clause in the Loan Agreement and that Mumbai is the seat of arbitration. On this aspect, there does not appear to be much dispute. The material on record shows that the Loan Agreement contains an arbitration provision and Mumbai is stated to be the seat of arbitration. Thus, the existence of an arbitration agreement between the parties is shown. To this limited extent, the Applicants have satisfied the requirement for approaching the Court under Section 11.

However, the mere existence of an arbitration agreement does not end the matter. The present Application has been filed after the same arbitration agreement was invoked in relation to the same loan transaction. Arbitration proceedings were thereafter conducted and an Award dated 6 August 2019 was passed. Therefore, the Court has to examine whether the present Application under Section 11 has been filed within the period of limitation permitted by law. On this limited aspect, the Supreme Court has explained the position in Aslam Ismail Khan Deshmukh v. ASAP Fluids (P) Ltd., (2025) 1 SCC 502. In paragraph 39, while considering the decision in Arif Azim, the Supreme Court held that an application under Section 11(6) is governed by Article 137 of the Limitation Act, 1963 and the period of limitation is three years from the date when the right to apply accrues. The Supreme Court has stated that such right arises after a notice invoking arbitration is issued by one party to the other and the other party fails or refuses to comply with the requirements of that notice.

The principle has been stated by the Supreme Court in paragraph 39 in the following exact words:

The same position has been considered in SBI General Insurance Co. Ltd. v. Krish Spg (2024) 12 SCC 1. In paragraph 136, the Supreme Court has held that while considering limitation under Section 11(6), the referral Court has to examine whether the Section 11 Application has been filed within three years. The relevant part reads:

In the present case the first relevant date cannot be ignored. The Applicants rely upon the Advocate's notice by which the loan was recalled and arbitration was invoked. The Respondents state that the said notice was dated 19 December 2016. According to the Respondents, this fact is recorded in the Applicants' own earlier Arbitral Award dated 6 August 2019. Thus, the date of first invocation is not a date which is being stated by the Respondents only on the basis of some outside material. It is stated to be appearing from the Applicants' own earlier arbitral record. Once arbitration was invoked on 19 December 2016 and the earlier arbitration proceedings were commenced, the right to seek constitution of the arbitral tribunal had arisen. The Applicants did not stop only after issuing the notice. They appointed Arbitrator and proceeded with the arbitration, which resulted in the Award dated 6 August 2019. Therefore, from the conduct of the Applicants, it is clear that the arbitration process had been commenced in relation to the same Loan Agreement and the same alleged default.

In these circumstances, it is difficult to accept that the right of the Applicants to approach the Court under Section 11 continued to remain alive till 2024. The material shows that the Applicants were aware of the alleged default. They recalled the loan, invoked arbitration, appointed an Arbitrator, proceeded with the arbitration and obtained an Award. Therefore, the right to seek constitution of an independent arbitral tribunal cannot be treated as having arisen for the first time in November 2024 merely because the Applicants are now relying upon a subsequent judgment of the Supreme Court. The Applicants seek to explain this by submitting that the earlier Award became redundant or non-est because the Arbitrator had been appointed unilaterally, particularly in view of Perkins Eastman Architect DPC & Anr. v. HSSC (India) Limited, 2019 SCC OnLine SC 1517. However, in my view, this subsequent legal development cannot give a fresh period of limitation for the same original dispute.

The judgment relied upon by the Applicants may have an effect upon the legal position regarding the unilateral appointment and the proceedings conducted by such Arbitrator. But it does not follow that a dispute which had been invoked in 2016 gets a new cause of action in 2024. The later judgment may affect the legal consequence of the earlier proceedings. It does not remove the fact that the Applicants had invoked arbitration in December 2016 and had pursued that invocation, which resulted in the Award dated 6 August 2019.

This conclusion is in accordance with the later clarification in Krish Spg. The Supreme Court has kept separate the limitation applicable to the Section 11 Application and the limitation of the actual claim which the party wants to refer to arbitration. Paragraph 136 makes it clear that the referral Court has to see whether the Section 11 Application is within three years. However, a detailed examination based upon evidence as to whether the actual claims are time-barred is a matter which may be considered by the Arbitral Tribunal.

In the present case it is not necessary for this Court to make any detailed examination of the actual monetary claim. The difficulty arises at the initial stage from the Applicants' earlier invocation of arbitration. The question is when the right to apply under Section 11 arose. From the material before the Court, that right arose when arbitration was invoked and the other party failed or refused to comply with the notice. That date cannot be shifted by the Applicants merely because the earlier arbitral proceedings are now sought to be treated as non-est on account of a later judgment.

The facts considered by the Supreme Court in paragraph 47 of Aslam Ismail Khan Deshmukh are relevant. In that case, the Supreme Court treated the date of failure or refusal to comply with the notice invoking arbitration as the date from which the three-year limitation period for a Section 11(6) petition would commence. The Court recorded:

Applying the same principle to the present case, once the Applicants invoked arbitration in December 2016 and acted upon that invocation by appointing an Arbitrator and continuing with the proceedings, the right to seek constitution of an arbitral tribunal in accordance with law had arisen. The fresh invocation stated to have been made on 14 November 2024 cannot, merely because it was made later or because there was a subsequent judgment, give a fresh period of limitation for the same dispute.

The submission of the Applicants that the Award dated 6 August 2019 has now become non-est requires consideration. Even if it is assumed that the earlier unilateral appointment of the Arbitrator could not stand in view of the later legal position, the consequence would be that the dispute would have to be considered by an Arbitrator appointed in accordance with law. It would not mean that the earlier dates relating to accrual of the dispute, invocation of arbitration and commencement of proceedings disappear for the purpose of limitation. A later change or clarification in law cannot ordinarily be treated as creating a fresh cause of action which was not there earlier. I find substance in the submission of the Respondents that the Applicants cannot now proceed as if there were no earlier arbitral proceedings at all. Those proceedings were initiated by the Applicants. An Award dated 6 August 2019 was passed. Thereafter, according to the Respondents, the Applicants filed proceedings under Section 9 before this Court concerning those arbitral proceedings and the Award. It is submitted that both those proceedings were withdrawn unconditionally. These facts are relevant because they show that the Applicants were aware of the dispute and were pursuing the same dispute through different proceedings. It may be the case of the Applicants that the earlier arbitration was defective because the Arbitrator was appointed unilaterally. But that submission does not answer the separate question of limitation of the present Section 11 Application. The Applicants knew of the alleged default in 2016. They invoked arbitration. They appointed the Arbitrator. They obtained an Award and thereafter took steps. From this entire sequence, there is nothing to show that the right to approach the Court under Section 11 arose for the first time only in 2024.

The submission of the Respondents regarding the Sale Certificate dated 9 September 2020 and the appropriation of the sale proceeds requires to be noticed. The present claim of the Applicants appears to be for amounts which, according to them, remained outstanding after the secured property was enforced and sold. The Respondents submit that after the secured property was sold, whatever amount remained would be an unsecured personal claim. They submit that after the security was exhausted, the Applicants cannot now treat the claim as one for enforcement of a mortgage which continues to exist and thereby claim the longer period under Article 62 of the Limitation Act, 1963.

At this stage, I am not required to finally decide the complete account between the parties or to make a detailed examination of the statement of account, the sale proceeds or the exact amount which may remain payable. The Supreme Court has cautioned that such examination with evidence ordinarily falls within the jurisdiction of the Arbitral Tribunal. Paragraph 43 of Aslam Ismail Khan Deshmukh makes it clear that the referral Court is required to make only a limited enquiry and a detailed determination as to whether the substantive claims are time-barred is to be left to the Arbitrator. Therefore, for deciding this Section 11 Application, I do not record any final finding regarding the exact amount which, according to the Respondents, remains payable or the full legal effect of the sale of the secured property. These matters may require examination of accounts, notices, sale documents and other material. Such examination at this stage would go beyond the limited enquiry contemplated by the Supreme Court.

At the same time, the submission of the Respondents regarding the nature of the claim cannot be completely ignored. The Applicants cannot rely upon the arbitration clause alone and leave out the later events, namely the sale of the secured property, the Sale Certificate dated 9 September 2020 and the stated pendency of proceedings before the Debts Recovery Tribunal-II, Mumbai concerning the legality of the sale. These events form part of the history of the same loan transaction and have relevance while considering the conduct of the Applicants and the relief sought by them.

The Respondents have submitted that the account was classified as a Non-Performing Asset on 9 May 2017 and that the same is reflected in the notice dated 14 August 2017 issued by the Applicant under Section 13(2) of the SARFAESI Act. I am not required to decide the complete dispute arising from the SARFAESI proceedings in the present Application. However, this submission cannot be treated as having no relevance. It shows that the loan account was being dealt with under a statutory recovery process. The history of the claim therefore includes the original loan transaction, invocation of arbitration, the Award, the SARFAESI proceedings and sale and thereafter the present Section 11 Application.

The Respondents have submitted that after the earlier proceedings were abandoned, the Applicants cannot commence a second arbitration on the same loan account and for the same cause of action. There is substance in the factual part of this submission. The present dispute does not arise from a new transaction. It is not based on any subsequent loan. The basis remains the Loan Agreement dated 26 September 2015 and the alleged failure to repay the amount due under that Agreement. However, I do not consider it necessary to decide the wider question that a second arbitration is in every case legally impossible after an earlier arbitral proceeding which is said to be defective. The legal effect of the earlier proceedings may depend upon the nature of the defect, the relief claimed, the orders passed in the earlier proceedings and the applicable statutory provisions. The present Application can be decided without entering into that wider question because the Section 11 request is beyond the prescribed period.

I have considered the submission that arbitration matters should be dealt with expeditiously and that the Court should not unnecessarily decide questions which are required to be decided by the Arbitral Tribunal. This principle is not in doubt. The Supreme Court in Interplay and thereafter in Krish Spg. has repeatedly cautioned against detailed judicial examination at the Section 11 stage. Paragraph 220 of Interplay states that the referral Court is required to “examine the existence of a prima facie arbitration agreement and not other issues”. However, paragraph 136 of Krish Spg. makes the position clear. The Court has to examine whether the Section 11 Application is within three years. At the same time, the Court should not conduct a detailed evidentiary examination into whether the underlying claim is time-barred. Therefore, examining the limitation applicable to the Section 11 Application does not amount to entering into the detailed merits which may be considered by the Arbitral Tribunal.

The distinction between these two questions is important. I am not recording a final finding that every part of the Applicants' monetary claim is conclusively barred by limitation. Such a finding may require examination of the actual claim, payments, acknowledgments, enforcement of security, appropriation of sale proceeds and the manner in which the amount has been calculated. That is a separate question. The finding required to be recorded in the present case is narrower. It arises from the Applicants' own conduct and the earlier proceedings. The Applicants invoked arbitration in December 2016. The proceedings were thereafter continued and an Award was passed on 6 August 2019. The right to seek constitution of an arbitral tribunal under Section 11 had arisen in the background of that invocation. The present Section 11 Application has been filed only in 2024. The three-year period under Article 137 had therefore expired before the present Application was filed.

The later decision in Perkins Eastman, even assuming that the earlier unilateral appointment was legally impermissible, cannot create a fresh cause of action for the Applicants after the earlier period of limitation had expired. It cannot give an automatic extension of limitation for reviving an arbitration which had been invoked before a unilaterally appointed Arbitrator. I have considered whether, even if the earlier appointment of the Arbitrator was legally defective, the Applicants should still be permitted to approach the Court so that the dispute may be adjudicated. The object of arbitration is certainly to have disputes adjudicated where the claim is legally alive. But the question of limitation cannot be ignored. The existence of an arbitration clause does not mean that an application under Section 11 can be filed at any point of time. Section 11 does not provide an unlimited period for approaching the Court. This is why the clarification in Krish Spg. does not assist the Applicants in the present facts. The Supreme Court has protected the jurisdiction of the Arbitral Tribunal by stating that the referral Court should not make a detailed determination as to whether the substantive claim is time-barred. But the Supreme Court has not held that an Arbitrator must be appointed even when the Section 11 Application has been filed beyond the three-year period under Article 137.

In the present case, the question of limitation is not dependent upon some disputed entry in the accounts which would require detailed evidence. It arises from the earlier invocation of arbitration and the conduct of the Applicants thereafter. The Award dated 6 August 2019 shows the existence of the earlier proceedings. The Applicants cannot rely upon the earlier arbitration for showing their claim and at the same time completely leave aside the same proceedings when limitation is being considered.The Respondents have described the claim as “dead, stale and time-barred”. This submission has to be understood in light of the clarification made in Krish Spg. I am not deciding at this stage the substantive limitation of every amount forming part of the loan account. Such an examination is not required for deciding the present Application. But, so far as the present Section 11 Application is concerned, I find that the period available for seeking appointment of an Arbitrator had expired before the Application was filed.

I find that the Applicants have not shown any sufficient legal basis for treating 14 November 2024 as the date on which a fresh right to apply under Section 11 arose. The later judgment or clarification regarding unilateral appointment cannot, by, create such a fresh right. Therefore, the Applicants' case fails at the threshold on the question of limitation. The objection regarding non-arbitrability need not be finally decided. The Respondents submit that if the claim of the Applicants is actually for enforcement of a mortgage over immovable property, it would be an action in rem and therefore not arbitrable. On the other hand, if the claim is only for recovery of the balance amount after sale of the secured property, the Respondents submit that a shorter period of limitation would apply. These questions relate to the true nature of the claim and the legal effect of the sale of the secured property. Since the present Application fails on the limitation applicable to the Section 11 Application, it is not necessary to give a final finding on these alternative objections.

Similarly, the pendency of Securitisation Application No. 143 of 2021 before the Debts Recovery Tribunal-II, Mumbai and the challenge to the legality of the sale need not be finally decided in the present proceedings. No finding recorded in this order is intended to decide the rights or contentions of either party in those proceedings.

On considering the matter as a whole, I find that the Applicants have established the existence of an arbitration agreement between the parties. However, the existence of such agreement alone is not sufficient for granting the present relief. The Applicants had invoked the same arbitration agreement in December 2016 and had pursued the arbitration proceedings which followed. The present Section 11 Application was filed only in 2024. The subsequent legal position regarding unilateral appointment does not provide a fresh period of limitation for approaching this Court under Section 11. The Application is therefore barred by limitation.

I have kept in mind the settled position that the referral Court should not enter into the substantive dispute at the Section 11 stage. Therefore, I have not recorded any final finding on the correctness of the Applicants' accounts, the exact amount which may remain payable after the sale of the secured property, the finality of the SARFAESI sale or the substantive limitation applicable to each part of the monetary claim. Those are separate questions. The finding in the present proceedings is confined to the maintainability of the Section 11 Application.

In view of the above discussion, the present Arbitration Application deserves to be rejected.

In view of the foregoing discussion, and upon overall assessment of the material record, the following order is passed: