The court ruled that previous arbitration did not cover current disputes, allowing for a new arbitration reference, and that prior involvement of the arbitrator does not disqualify him under the Fifth Schedule.

JUDGEMENT :

[SOMASEKHAR SUNDARESAN, J.]

Context and Background :

1. This is an Application under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”) seeking appointment of an arbitrator to refer the disputes and differences being raised by the Applicant which essentially relate to a Loan Agreement dated April 2, 2018, which admittedly contains an arbitration agreement.

2. The facts of the case present a unique situation inasmuch as none of the Respondents contest the existence of an arbitration agreement, but one of them asserts an element of constructive res judicata, and also invokes the Fifth Schedule of the Act, while others submit that the application for a reference to arbitration is premature.

3. Learned Counsel on behalf of Respondent No.2 submits that disputes and differences between the parties relate to very same Loan Agreement that had already been referred by a Learned Single Judge of this Court to arbitration, by an order dated March 15, 2022, which culminated in an Arbitral Award dated March 2, 2023. The Arbitral Award, essentially rejected the declaratory relief sought by Respondent No. 2 (the Claimant in that arbitration) that the guarantee issued by him stood extinguished.

4. Respondent No.2, among others, is a guarantor of a loan of Rs.6.95 crores given by the Petitioner to the Respondent No.1, a Limited Liability Partnership, where Respondent No.2 is one of the partners. Two other partners of Respondent No.1 i.e. Respondent No.3 and Respondent No.4 were also guarantors in respect of the obligations owed by Respondent No.1 to the Petitioner, under the aforesaid Loan Agreement.

5. The Arbitral Award passed by Justice (Retd.) Akil Kureshi, deals with certain issues extensively. The core issue presented before the Learned Sole Arbitrator in the last round was whether the Petitioner’s dual entitlement, namely, to repayment of the loan, and reinstatement as a partner, were two mutually exclusive options for the Petitioner to elect from, or whether they were concurrent options, both of which the Petitioner could ride on. In a nutshell, the Arbitral Award made by Justice Kureshi rules that both options were available to the Petitioner but the Petitioner had to elect one of the two options. The Arbitral Award found that the Petitioner did elect, although belatedly, for repayment instead of reinstatement, and that the guarantee given by Respondent No. 2 could not stand extinguished.

Respondents’ Conflicting Contentions:

6. The basis of the opposition by Learned Counsel for Respondent No.2 to referring the matter to arbitration is that the issue being raised now (dispute over the default by the Respondent No. 1 in repaying the loan and the default by the other Respondents in honouring the guarantee) were already covered by the earlier arbitration, or were capable of being raised and covered in the earlier round. Therefore, he would submit, a claim and a dispute over such payment obligations being defaulted upon, are covered by constructive res judicata. According to him, the Petitioner could have raised any and every grievance that he had at that time before the Learned Sole Arbitrator. Today, it would not be open for him to seek arbitration for resolution of disputes under the very same agreement, since the disputes had already been adjudicated.

7. In sharp contrast, Learned Counsel for Respondent No.3 and 4, who are also guarantors for the very same obligations, raise a different ground. Respondent Nos. 3 and 4 instruct their Counsel to submit that the invocation of arbitration is premature. According to them, there is no crystallised default yet by Respondent No. 1 and therefore, this is not the stage when disputes over payment default under the loan and the guarantee could be referred to arbitration. By this token, in their view, once there is a certain default, arbitration may be invoked.

8. All these competing grounds from the Respondents in their bid to stave off a reference to arbitration are subject mat