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2025 Supreme(Del) 326
IN THE HIGH COURT OF DELHI AT NEW DELHI
JASMEET SINGH, J.
Intec Capital Limited - Appellant
Versus
Mr Shekhar Chand Jain & Another - Respondents
ARB. A. (COMM.) 25/2024 & I.A. 10158/2024
Decided on : 04-09-2025
For the Appellant : Mr. Pranav Goyal, Ms. Pooja Chaudhary, Ms. Mreeganka Goyal, Mr. Vishant Singh, Advs.
For the Respondent: Mr. Mohit Sharma, Adv.
A non-signatory guarantor may be compelled to arbitrate disputes if the guarantee incorporates the arbitration clause from the principal agreement, affirming the necessity of parties' intent in understanding contract formations.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 37(2)(a) - Arbitration proceedings - Discharge of guarantors from arbitration by the learned arbitrator on grounds of non-existence of arbitration agreement - Court determined that the Deeds of Guarantee incorporate the arbitration clause from the Loan Agreement due to explicit acknowledgment, thus binding the respondents. (Paras 60)
(B) Whether the arbitration clause in the Loan Agreement binds guarantors who did not sign it - The court found that the arbitration clause is incorporated by reference as the Deeds of Guarantee mutually refer to the Loan Agreement, establishing a single composite transaction. (Paras 18, 39, 58)
Facts of the case:
The appellant is a Non-Banking Financial Company that sanctioned a loan to principal borrowers who defaulted. The respondents executed Deeds of Guarantee but argued they were not parties to the Loan Agreement containing the arbitration clause.
Findings of Court:
The arbitration clause existed in the Loan Agreement and is deemed incorporated into the Deeds of Guarantee, thus requiring the respondents to arbitrate.
Issues: The primary legal question was whether the arbitration clause in the Loan Agreement binds non-signatory guarantors.
Ratio Decidendi: The court held that clear reference and intent indicate the Deeds of Guarantee incorporate the arbitration agreement, therefore binding the respondents, as supported by the principle of incorporation elucidated in case law.
Result: The appeal is allowed.
| Table of Content |
|---|
| 1. appellant's identity and procedural context. (Para 2 , 3) |
| 2. loan agreement details and arbitration initiation. (Para 4 , 5 , 6 , 7) |
| 3. arbitrator's appointment and procedural history. (Para 8 , 9 , 10 , 11) |
| 4. filing of appeal against the arbitrator's order. (Para 12) |
| 5. appellant's arguments on incorporation of arbitration clause. (Para 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21) |
| 6. respondents' arguments against arbitration clause applicability. (Para 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34) |
| 7. court's analysis on arbitration clause incorporation. (Para 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58) |
| 8. conclusion and order setting aside the arbitrator's decision. (Para 59 , 60 , 61) |
JUDGMENT :
JASMEET SINGH, J.
1. This is an appeal filed under Section 37(2)(a) of the Arbitration and Conciliation Act, 1996 (for brevity “the Act”) against the impugned order dated 20.04.2024 passed by the learned arbitrator in an arbitration matter, being Case Ref. No. DIAC/6864B/09-23 titled as “M/s Intec Capital Ltd. v. M/s Shikhir Plast India Pvt. Ltd. & Others”.
FACTUAL BACKGROUND
2. The description of the parties is that M/s Intec Capital Ltd. (hereinafter referred to as “the appellant”) is a Non-Banking Financial Company incorporated under the provisions of the Companies Act, 1956. Mr. Shekhar Chand Jain (hereinafter referred to as “the respondent No. 1”) is the proprietor of M/s Ganesh Polymers (hereinafter referred to as “the respondent No. 2”).
3. The appellant has preferred the present appeal against the order dated 20.04.2024 passed by the learned arbitrator in the arbitration proceedings, whereby the application filed by the respondents was allowed and the respondents were deleted from the array of parties.
4. The brief facts of the case as per the appellant are that in the year 2012, Ms. Poonam Jain (hereinafter referred to as “the principal borrower No. 1”), the proprietor of M/s Shri Digamber Polymers (hereinafter referred to as “the principal borrower No. 2”), approached the appellant seeking a loan facility. Amongst other securities, the respondents agreed to stand as personal guarantors for the said facility and executed separate Deeds of Guarantee on the same date as the Loan Agreement.
5. Relying upon the representations of the respondents, the appellant sanctioned a loan of Rs. 68,18,000/- to the principal borrower No. 2, with the principal borrower No. 1 as the authorised signatory. The loan was granted vide Loan Agreement dated 21.12.2012 and the respondents executed personal Deeds of Guarantee in support thereof.
6. The principal borrowers repeatedly defaulted in repayment. Consequently, the appellant was constrained to invoke the arbitration agreement contained in the Loan Agreement on 11.07.2015, being Clause 32 of the Loan Agreement, which is reproduced as under:
“32. ARBITRATION
32.1 Any conflict, difference, controversies, or disputes arising between the parties shall be resolved amicably at the first instance. Unresolved disputes, if any, shall be submitted/referred to arbitration of the Sole Arbitrator. The Sole Arbitrator shall be either the Director or Head Commercial Business of INTEC CAPITAL LIMITED or any other person nominated by him/them. The Arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996, Rules thereunder, any amendments thereto and the language of the Arbitration shall be in English. The decision/award of the Arbitrator shall be final/conclusive and binding on the parties.
The seat of Arbitration shall be Delhi.”
7. Thereafter, Mr. Ashish Kumar, Advocate, was appointed as the Sole Arbitrator and arbitration proceedings were commenced. The respondents duly participated in these proceedings. However, on 10.07.2023, the learned arbitrator recused himself from the matter.
8. Thereafter, this Court, vide the order dated 15.09.2023, allowed the application of t
