Prior Participation in Arbitration Proceedings Bars Objection to Section 21 Notice: Delhi High Court
Case Overview
Case Name: De Lage Landen Financial Services India Pvt. Ltd. Vs Parhit Diagnostic Private Limited & Ors. (Delhi High Court)
Appeal Number: ARB. P. 267/2021
Date of Order: 09/08/2021
Court: Delhi High Court
Background and Factual Matrix
The Delhi High Court, in this matter, was called upon to adjudicate a petition filed under Section 11(4) and Section 11(6) of the Arbitration and Conciliation Act, 1996, wherein the petitioner-lender sought appointment of an independent Sole Arbitrator to resolve disputes arising out of a financial arrangement with the respondent-borrower.
The Underlying Agreements
The dispute traced its origin to a Loan and Hypothecation Agreement dated 31st July, 2018, executed between the parties for a principal sum of Rs. 1,65,15,000/-, disbursed across two tranches under separate loan account numbers. To secure repayment obligations, Respondent No. 2 (Mr. Dhirendra Kumar Mishra) and Respondent No. 3 (Mr. Satya Prakash), both being Directors of the borrower-company (Respondent No. 1), executed two independent Guarantee Agreements also dated 31st July, 2018, in their personal capacities, committing to discharge outstanding dues upon demand by the lender.
The Arbitration Clause
The arbitration clauses embedded in Clause 53 of the Loan and Hypothecation Agreement and Clause 13 of each Guarantee Agreement were identically worded. The relevant extract reads as follows:
"53. This Agreement shall be governed by, and construed in accordance with, the laws of India. All disputes, differences and or claims arising out of these presents or in any way touching or concerning the same or as to construction, meaning or effect or as to the rights and liabilities of the Parties hereto shall be settled through arbitration to be held in accordance with the provisions of the Arbitration and Conciliation Act. 1996 as amended from time to time or any other or further Act of the Parliament that may be enacted in relation to arbitration proceedings Arbitration proceedings as aforesaid between the Parties shall be referred to a sole arbitrator to be appointed by the Lender at its absolute discretion in the event of death, refusal, neglect, inability or incapability of a person nominated/appointed to act as the sole arbitrator, the lender may at its absolute discretion, appoint another person instead as the new arbitrator. The arbitration proceedings shall be conducted in the English language. The award passed by the arbitrator shall be final and binding on all the Parties concerned. The costs of arbitration shall be borne by the Party(ies) as determined in the arbitration award. The arbitration proceedings, at the Lender's sole discretion, shall be held either in Delhi National Capital Region or Mumbai. The courts in Delhi/National Capital Region or Mumbai at the Lender's sole discretion, shall have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and the Borrower irrevocably submits to the jurisdiction of those courts."
The clause, by its plain language, vested unilateral appointment power in the lender — a feature that would later necessitate the filing of the present petition.
Sequence of Events Leading to the Petition
The following chronological facts are relevant to understanding the legal controversy:
13th May, 2019: The lender issued notices for "facility cancellation/acceleration" to all respondents, calling upon them to settle outstanding dues and warning that failure to comply would result in enforcement of rights under the agreements.
17th July, 2019: Separate Guarantee Invocation Notices were served upon Respondents No. 2 and 3.
29th August, 2019: The lender sent a communication titled "Invocation of Arbitration/Reference of Dispute for the adjudication" directly to Shri M. S. Sabharwal (Retd. Additional District & Sessions Judge, Delhi), unilaterally appointing him as Sole Arbitrator, with copies endorsed to all respondents. The letter requested the Arbitrator to enter upon the reference and initiate proceedings between all parties.