The court ruled that arbitration agreement scope is limited to recovery claims below a specified pecuniary threshold, rejecting cases involving penal interest calculation.

JUDGEMENT :

Context and Factual Background:

1. This Application has been filed under Section 11 of theArbitration and Conciliation Act, 1996 (“the Act”), seeking appointment of an arbitrator in connection with disputes and differences that are said to have arisen between the parties under a Master Facility Agreement dated December 18, 2018 (“Agreement”).The arbitration agreement iscontained in Clause 11.7 of the Agreement. Since the very existence of the arbitration agreement is in issue in these proceedings, it is necessary to reproduce the same below:-

This Agreement shall be construed and governed in accordance with and governed by the laws of India. The Parties hereto expressly agree that all disputes arising out of and /or relating to this Agreement including any related documents shall be subject to the exclusive jurisdiction of the Courts/Tribunals of the city/town of the Branch Office or of the place which have territorial jurisdiction over the place in which the Branch is situated. Provided this clause shall not restrict the Bank and the Bank shall be entitled to initiate/take proceedings relating to a dispute in any Courts/Tribunals of any other place which has jurisdiction. Provided further that if any dispute arising under this Agreement is below the pecuniary jurisdiction limit of the Debts Recovery Tribunals established under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, then such dispute shall be referred to arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 as may be amended, or its re-enactment, to be conducted by a sole arbitrator, appointed by the Bank. The arbitration proceedings shall be conducted in English language. The award passed by the arbitrator shall be final and binding on the Parties. The cost of such arbitration shall be borne by the losing Party or otherwise as determined in the arbitration award. The venue of arbitration shall be the city in which the Branch is situated or such other place as may be determined by the Bank. If a Party is required to enforce an arbitral award by legal action of any kind, the Party against whom such legal action is taken shall pay all reasonable costs and expenses and attorney’s fees, including any cost of additional litigation or arbitration taken by the Party seeking to enforce the award.

[Emphasis Supplied]

2. At the heart of the disputes and differences between the parties is the manner in which the Respondent has charged penal rates of interest in the loan account of the Applicant. By an invocation notice dated May 13, 2024, the Applicant has stated that it discovered that the Respondent was charging exorbitant interest at rates not contracted under the Agreement. The Respondent is said to have imposed penal interest at the rate of 36% per annum on the premise of delay in execution of security documents and additional interest of 3% per annum on the premise of non-renewal of the loan facility. There are also disputes about the bank account being blocked without reason between February 22, 2022 and February 25, 2022. In a nutshell, the disputes and differences clearly relate to the operation of the Agreement.

Respondent’s Objections:

3. The Respondent has opposed the Application on the premise that the arbitration agreement is not in existence at all in relation to the disputes being raised by the Applicant. The objections of the Respondent have been reduced to writing in an affidavit dated November 19, 2024, denying the existence of the arbitration agreement. The core contention of the Respondent