Arbitration agreements remain enforceable despite allegations of fraud unless serious fraud is established, which requires evidential assessment outside arbitration proceedings.

JUDGMENT:

ADVAIT M. SETHNA, J.

1. This is an Application under Section 11 of the Arbitration and Conciliation Act, 1996 (“ACA” for short) praying for an appointment of a sole arbitrator under Section 11 of the ACA. This is to adjudicate disputes between the Applicant and the Respondent, arising out of the Mortgage Deed dated 28 December 2020 (“The said Mortgage Deed” for short) which entails an Arbitration Clause.

Issue:-

2. The intriguing Issue that falls for determination in these proceedings revolves around the existence, maintainability and entertainability of the arbitration clause/agreement contained in the said Mortgage Deeds, given the Respondent’s contention that on account of criminality, fraud touching upon the underlying Mortgage Deeds the disputes are ipso facto non arbitrable.

Factual Matrix:-

3. The Applicant is a Non-Banking Financial Company incorporated under the Companies Act, 1956 and the Respondent is the borrower who has allegedly secured a loan under the said Mortgage Deed.

4. According to the Applicant, the genesis of the dispute revolves around the said Mortgage Deed, in respect of the immovable property i.e., the Bungalow (“subject property” for short) as described in the said Mortgage Deed, executed between the Applicant and the Respondent. The arbitration clause in paragraph 21 as referred to in the given Application, reads thus:

“21. In case of any dispute and/or any difference of opinion between the parties hereto in any manner, either in implementation and/or giving effect to the true meaning and proper interpretation thereof, the same shall be referred to Arbitration & Conciliation under the provisions of Arbitration & Conciliation/Jurisdiction of Mumbai Courts. The same shall be held in Mumbai under the guidance of an Arbitrator as may be decided by the Mortgagees.”

5. According to the Applicant, it had sanctioned a loan for the principal amount of Rs. 3 Crores, which is reflected in the sanction letter dated 28 December 2020, issued by the Applicant to the Respondent. Further, as per the Applicant, the Respondent further availed a loan of Rs. 44,62,570/- which is reflected in another sanction letter dated 16 February 2022 issued by the Applicant to the Respondent. Thus, the Applicant would state that the total principal loan amount sanctioned to the Respondent is Rs.3,44,62,570/- to be secured against the subject property of the Respondent.

6. Pursuant to the above, it is the Applicant’s case that the said Mortgage Deed was executed with the Respondent against the subject immovable property, to the extent of Rs. 3 Crores. Also that, for the top up loan of Rs. 44,62 Lakhs (approx) availed by the Respondent, another Mortgage Deed dated 16 February 2022 is stated to be executed between the parties.

7. The Applicant issued a Notice dated 7 January 2023 styled as Notice under Section 21 of the ACA invoking arbitration. This is in terms of the dispute resolution – Arbitration Clause contained in the said Mortgage Deed. The Notice stipulated a time period of three days to the Respondent to raise her objections, failing which the arbitrator would be appointed under the provisions of the ACA.

8. Pursuant to the above, the Respondent issued a letter of its Advocate dated 14 January 2023, in response to the Applicant’s Notice to invoke arbitration dated 7 January 2023. By such response, the Respondent pleaded ignorance of the said Mortgage Deeds, sanction letters and sought disclosures of the said documents. The Respondent also denied to sub