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2026 Supreme(Cal) 587
IN THE HIGH COURT AT CALCUTTA
OM NARAYAN RAI, J.
Srikanta Patra - Petitioner
Versus
Indusind Bank Ltd. – Opposite Party
CO 4388 of 2025
Decided On : 23-03-2026
For the Petitioner: Mr. Mr. Rajib Ray, Adv.
For the Opposite Party : Ms. Soni Ojha, Adv., Ms. Sambrita B. Chatterjee, Adv.
Courts must mandatorily refer disputes to arbitration upon a prima facie finding of a valid arbitration clause. Summary referral proceedings prohibit mini-trials regarding contract validity or the bifurcation of claims between judicial and arbitral forums, ensuring the objective of speedy dispute resolution is met.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 5 and Section 8 - Mandatory referral to arbitration where there is an existing arbitration clause within a loan agreement - Court's duty at the referral stage is limited to a prima facie finding that a valid arbitration clause exists - It is not a forum for mini-trials to assess the validity of the underlying contract or conduct a full review of evidence. (Paras 12, 16, 17)
(B) Arbitration Agreement - Unilateral appointment of arbitrator - While the process of unilateral appointment might be scrutinized, such a condition does not automatically render the entire arbitration agreement void or unenforceable. (Para 19)
(C) Repossession of assets - In the context of a loan or hire-purchase agreement, taking possession of a financed medium upon default is not illegal provided it is conducted in accordance with the terms of the agreement. (Para 20)
(D) Bifurcation of subject-matter - Courts cannot allow the splitting of causes of action between judicial and arbitral forums; such actions are prohibited as they frustrate the legislative object of speedy and cost-effective disposal of disputes. (Para 21)
Facts of the case:
The petitioner initiated a civil suit seeking a declaration of ownership and permanent injunction after a lender repossessed a vehicle due to default on loan installments. The petitioner alleged that the loan documents were manipulated. The lender subsequently filed an application based on an arbitration clause contained in the loan agreement to refer the matter to arbitration. The trial court allowed the application and referred the parties to arbitration, which the petitioner challenged.
Findings of Court:
The court upheld the trial court's order, noting that once a certified copy of an agreement with an arbitration clause is produced, the court is obligated to refer the dispute to arbitration. The court clarified that the trial court is only required to be prima facie satisfied of the arbitration clause's existence and should not engage in a mini-trial regarding the merits or alleged contractual irregularities.
Issues: Whether the trial court incorrectly referred the dispute to arbitration without first determining the validity of the arbitration agreement, and whether the repossession of the financed vehicle was illegal and thus not arbitrable.
Ratio Decidendi: Minimal judicial intervention is mandated under the law regarding arbitration. The court must perform only a summary review to weed out non-existent arbitration agreements. Bifurcation of the subject matter between civil courts and arbitration tribunals is impermissible, as the arbitrator has the exclusive domain to adjudicate disputed facts and contractual validity.
Result: Revisional application dismissed.
| Table of Content |
|---|
| 1. procedural history of the suit referred to arbitration. (Para 1 , 2 , 3 , 4) |
| 2. parties' contentions regarding arbitration and repossession. (Para 5 , 6 , 7 , 8 , 9) |
| 3. statutory mandate to refer disputes to arbitration. (Para 10 , 11 , 12 , 13 , 14 , 15) |
| 4. prima facie judicial scrutiny of arbitration agreements. (Para 16 , 17 , 18 , 19 , 20 , 21 , 22) |
| 5. final order upholding referral to arbitration. (Para 23 , 24 , 25 , 26) |
JUDGMENT :
OM NARAYAN RAI, J.
1. This revisional application is directed against an order dated December 3, 2025 passed by the learned Judge, Bench – V, City Civil Court, Calcutta in Title Suit No.2121 of 2024 whereby the suit has been stayed and the parties have been referred to arbitration under section 8 of the Arbitration and Conciliation Act, 1996 (hereafter “the 1996 Act”).
2. The aforesaid suit had been instituted by the petitioner praying for a decree for declaration that the petitioner is the owner of the goods carrier and for permanent injunction. Briefly put, the case pleaded by the petitioner before the learned Trial Court is that he had availed of credit facilities from the opposite party to purchase a goods carrier. Due to financial recession and business losses, the petitioner defaulted on three installments. It is the petitioner’s contention that although the said default, was brief and unintentional yet, the opposite party repossessed the petitioner’s vehicle. The plaint also contains allegations to the effect that his signatures had been obtained on blank papers, unfilled printed forms and printed papers for the purpose of granting financial assistance and nothing as regards loan amount, rate of interest, amount repayable and period of repayment was informed to the petitioner.
3. The opposite party entered appearance in the suit and filed an application under Section 5 read with Section 8 of the 1996 Act asserting that the loan agreement contained an arbitration clause and in terms thereof, the parties should be referred to arbitration.
4. The learned Trial Court has, by the order impugned, allowed the said application under Section 5 read with Section 8 of the 1996 Act.
5. Mr. Ray, learned advocate appearing for the petitioner submits that the learned Trial Court has committed a serious error in referring the parties to arbitration without first coming to a prima facie finding that there is existence of an arbitration clause. It is further submitted that the vehicle had been repossessed by force; the same could not be made subject matter of adjudication before the arbitrator.
6. Relying on a judgment of the Hon’ble Supreme Court in the case of Vidya Drolia vs. Durga Trading Corpn. , (2021) 2 SCC 1, it has been submitted that prior to referring the parties to arbitration, it is the duty of the Court to come to a prima facie conclusion that a valid arbitration clause exists. It is further submitted that the arbitration clause suggests that the lender itself will solely appoint the arbitrator, and as such, the arbitration clause is void.
7. Relying on a judgment of the Hon’ble High Court at Patna in the case of Dhananjay Seth vs. The Union of India , 2023 SCC Online Patna 1393, it was submitted that forceful repossession of vehicle purchased through hire-purchase mechanism is illegal.
8. Ms. Ojha, learned advocate appearing for the opposite party/bank submits that the learned Trial Court has committed no error in referring the parties to arbitration in terms of the arbitration clause that is admittedly there in the loan agreement.
9. Relying on the judgment of the Hon’ble Supreme Court in the case of Magma Fincorp Ltd. vs. Rajesh Kumar Tiwari , (2020) 10 SCC 399, it is submitted that if the relevant loan agreement itself provides for repossession of the vehicle financed by the financier then repossession of vehicle in terms of such agreement cannot be said to be illegal. Reliance is also placed on the judgment of the Hon’ble Supreme Court in the case of M/s. Sundaram Finance Ltd. &
