Arbitration agreements are valid unless explicitly prohibited, and disputes concerning amounts owed to financial institutions can be arbitrated alongside ongoing statutory recovery actions.

Order

1. By way of filing this application under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act of 1996”), a prayer has been made for appointment of an Arbitrator to settle the disputes arose between the parties.

2. Learned counsel for the applicants submits that a loan agreement (hereinafter referred to as “agreement”) was executed between the parties on 23.01.2017 wherein there is a clause under Article 23 for settlement of the disputes by way of Arbitration under the provisions of the Act of 1996. Learned counsel submits that the applicants had filed a partition suit before the District Judge, Ajmer. However, the respondents raised an objection, contending that in light of the arbitration clause under Article 23 of the agreement, the Civil suit filed by the appilcants was not maintainable and the matter was required to be resolved through the proceedings provided under the Act of 1996. The learned counsel submits that faced with the above the applicants withdrew the said suit in order to initiate proceedings provided under the Act of 1996 and to invoke the arbitration clause. As a result thereof, the plaint was returned to the applicants on 01.06.2024 under Order 7 Rule 10 of the Code of Civil Procedure .

3. Learned counsel submits that after passing of the aforesaid order by the Civil Court, the instant application has been submitted for appointment of an Arbitrator for settlement of disputes arising between the parties.

4. In support of his contentions, counsel has placed reliance upon the judgment passed by Bombay High Court in the case of Aditya Birla Finance Limited Vs. Paul Packaging Private Limited reported in 2024 SCC Online BOM 3682

5. Per contra, learned counsel for the respondents opposed the arguments raised by learned counsel for the applicants and submitted that the proceedings under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “SARFAESI Act, 2002”) have been initiated against the applicants and the same has been culminated and thereafter an application under Section 17 of the SARFAESI Act, 2002, i.e., Securitization Application has been submitted by the applicants before the Debt Recovery Tribunal, Jaipur wherein also a similar pleading has been made, as made in Para 3 of the instant application i.e., the applicants have constructed 12000 Square Feet on the disputed property and out of the aforesaid 12000 Square Feet, only 6318 Square Feet construction was mortgaged with the respondents-Company for availing the loan facility. Learned counsel submits that proceedings under the SARFAESI Act, 2002 have been initiated in respect of the property measuring 6,318 Square Feet, which was the only portion mortgaged by the applicants to the respondents.

6. Learned counsel for the respondents submits that the respondents have taken a preliminary objection with regard to maintainability of the instant application on the count that before filing the application under Section 11 of the Act of 1996, the procedure prescribed under Section 21 of the Act of 1996 has not been followed and no notice, prior to filing of the application, was served by the petitioner upon the respondents. Learned counsel for the respondents submits that since the matter is already subjudice before the DRT, the instant arbitration application is not maintainable.

7. Learned counsel for the respondents submits that after culmination of the proceedings under the SARFAESI Act, 2002, an application under Section 11 of the Act of 1996 is not maintainable. In support of his contentions, counsel has placed reliance upon the judgment passed by the Hon’ble Apex Court in the case of Vidya Drolia & Others Vs. Durga Trading Corporation reported in (2021) 2 SCC 1. Learned counsel has also placed reliance upon the judgment passed by the Delhi High Court in the case of Alupro Building Systems Pvt. Ltd. Vs. Ozone Overseas Pvt. Ltd.