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2022 Supreme(Bom) 816
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
N.J. JAMADAR, J.
USP Studios Pvt. Ltd. - Plaintiff
Versus
Ganpati Enterprises & Ors. - Defendants
Summons For Judgment No. 21 of 2020 In Comm Summary Suit No. 1420 of 2019 With Interim Application No. 834 of 2020
Decided On : 25-08-2022
For the Plaintiffs : Mr. Priyank Kapadia, i/b Jyoti Ghag, i/b Dua Associates.
For the Defendants : Mr. Amit Patil, a/w Ms. Sailee Dhayalkar, i/b Parinam Law Associates.
The main legal point established in the judgment is that the existence of an arbitration agreement and a semblance of dispute warrant the reference to arbitration, despite the implied admission of liability.
Headnote:
Arbitration - Recovery of Loan - Companies Act, 1956 - Negotiable Instruments Act, 1881 - Arbitration and Conciliation Act, 1996
Fact of the Case:
The plaintiff, a company incorporated under Companies Act, 1956, sought recovery of a loan amount along with interest from the defendants. The defendants contested the suit, claiming that the dispute should be referred to arbitration based on the arbitration clause in the loan agreement.
Finding of the Court:
The court analyzed the arguments of both parties and found that the existence of an arbitration agreement and a semblance of dispute required the reference to arbitration. The court held that the liability being impliedly admitted did not preclude the reference to arbitration as per the Arbitration and Conciliation Act, 1996.
Issues: The main issue was whether the dispute should be referred to arbitration based on the arbitration clause in the loan agreement, despite the implied admission of liability by the defendants.
Ratio Decidendi: The court relied on the provisions of the Arbitration and Conciliation Act, 1996, and held that the existence of an arbitration agreement and a semblance of dispute warranted the reference to arbitration, despite the implied admission of liability.
Final Decision: The court referred the parties to arbitration in accordance with the arbitration agreement contained in the loan agreement, thereby disposing of the commercial summary suit.
JUDGMENT :
1. This commercial division summary suit is instituted for recovery of a sum of Rs.3,02,78,710/- along with further interest on the principal sum of Rs.2 Crore at the rate of 18% p.a. from the date of the institution of the suit till payment and/ or realization.
2. The plaintiff is a company incorporated under Companies Act, 1956. It deals in the business, inter alia, of production of audio visual contents – programs, which are broadcast on various digital media platforms like YouTube. Defendant no.2 - Parvinchand Narindernath Sehgal is the proprietor of Ganpati Enterprises, defendant no.1. Defendant no.3 is the karta of defendant no.2.
3. The plaintiff claims, on the request of defendant no.2, plaintiff had advanced a sum of Rs.2 Crore to the defendants. A loan agreement dated 28th July, 2016 evidencing the said transaction came to be executed. The loan was to be repaid after a period of 12 months, along with interest at the rate of 18% p.a. The plaintiff remitted the amount of Rs.2 Crore on 28th July, 2016 to the account of defendant no.1 through banking channels. Only an amount of Rs.30,00,000/- towards interest component was paid by the defendants. After expiry of the term of loan and upon repeated demands, the defendant issued two cheques drawn for Rs.1 Crore each payable on 29th January, 2018, towards repayment of the loan. Both the cheques were returned unencashed on presentment. Despite service of a statutory notice under Section 138 of the Negotiable Instruments Act, 1881 (“the N.I. Act”), the defendants committed default in payment of the amount covered by the cheque necessitating the lodging of a complaint under the N.I. Act, being CC No.1583 of 2018, before the Metropolitan Magistrate, Bandra, Mumbai. Hence, this suit based on written contract and the negotiable instruments.
4. After the plaintiff took out the Summons for Judgment, the defendants have filed an affidavit-in-reply seeking leave to defend the suit. By way of preliminary objection, the defendants have contested the tenability of the suit in view of the arbitration clause contained in the loan agreement and sought the reference of the dispute to arbitration. Clause (8) of the Loan Agreement reads as under :
“8. ARBITRATION: Any claim, controversy or dispute arising out of or in connection with this Agreement shall be referred to arbitration and will be binding on both the parties and will conducted in Mumbai, India and shall be governed by and construed in accordance with the laws of India. The language of the arbitration shall be English.”
5. The defendants contend that in view of the aforesaid arbitration clause incorporated in the loan agreement, on the strength of which the plaintiff has instituted this summary suit, the dispute is required to be mandatorily referred to arbitration.
6. I have heard Mr. Kapadia, the learned Counsel for the plaintiff, and Mr. Patil, the learned Counsel for the defendants, at some length, on the issue of reference to arbitration.
7. Mr. Patil, the learned Counsel for the defendants, submitted that in view of the clear and unambiguous arbitration clause (extracted above), there is no other go but to make an arbitral reference under Section 8 of the Arbitration and Conciliation Act, 1996 (“the Act, 1996”). Laying emphasis on the fact that there can be no dispute about the existence of arbitration agreement as the plaintiff’s claim squarely rests on the vary some loan agreement, which contains the aforesaid arbitration clause, Mr. Patil submitted that the resistance to reference cannot be countenanced.
8. Mr. Kapadia, the learned Counsel for the plaintiff, without joining the issue on the aspect of the existence of arbitration agreement, canvassed a submission that the reference under Section 8 of the Act, 1996 would only be warranted where there is a subsisting dispute, which is susceptible to arbitration. In the case at hand, since the liability is unequivocally admitted, reference to arbitration would be unwarranted.
