HC Rules: Review of Order u/s 11 of the Arbitration & Conciliation Act, 1996 does not lie with the HC,

 

The Single Bench of the Delhi High Court in the case of M/S Diamond Entertainment Technologies Private Limited & Ors. vs Religare, Finvest Limited Through its Authorized Officer consisting of Justice Neena Bansal Krishna reiterated that the review of Order under Section 11 of the Arbitration & Conciliation Act, 1996 does not lie with the High Court.

Brief Facts:

This review petition under Order 47 read with Sections 114 and 151 of the Code of Civil Procedure, 1908 was filed on behalf of the Petitioner (Respondent in the main petition) seeking review of the Order allowing the petition u/s 11 Arbitration and Conciliation Act, 1996 (hereinafter referred to as “A& C Act”) and an Arbitrator was appointed for adjudication of the disputes. 

Contentions of the Petitioner:

It was contended that the Respondent (Petitioner in the main petition) had misled the Court by relying on HDFC Bank Ltd. v. Satpal Singh Bakshi (2012 SCC OnLine Del 4815) which was overruled in Vidya Drolia and Ors. v. Durga Trading Corporation (2021 2 SCC 1). It was further contended that the entire basis for the Respondent to approach this Court arose from the measures taken by the Respondent under the relevant provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “SARFAESI Act, 2002”). Hence, the invocation of Arbitration regarding the matters covered under the SARFAESI Act, 2002 was illegal and could not be held to fall within the A & C Act. 

Contentions of the Respondent:

It was contended that there is no provision for review of the Orders made under the A& C Act and therefore, this application was liable to be rejected. It was further argued that in Vidya Drolia (Supra), there was no reference to the proceedings under the SARFAESI Act, 2002 and even though HDFC(Supra) has been overruled, M.D Frozen Fruits Private Limited v. Hero Fincorp Ltd (2017 16 SCC 741) has not been overruled which provides that arbitration proceedings can go hand in hand with the proceedings under the SARFAESI Act, 2002. It also assailed the Order passed in the original application filed by the Bank u/s 19 of The Recover of Debts and Bankruptcy Act, 1993 (hereinafter referred to as “RDB Act”). Such proceedings were civil proceedings and therefore, any observations made in context thereto ought not to be squarely made applicable to the proceedings under the SARFAESI Act, 2002.

Observations of the Court:

 

Regarding the maintainability of the review petition under the Act, 1996, the Bench relied on various precedents. It was held that the review of the Order under Section 11 of the Arbitration & Conciliation Act, 1996 does not lie with the High Court. It opined that in this case, since the Order made u/s 11 of the A &C Act was in the exercise of the statutory powers any review of the same could be only within the parameters of the Statute. Due to the unavailability of any provision of review in the A & C Act, it lacked the jurisdiction to review the Order. Moreover, the grounds raised were in the realm of Appeal.

Regarding the issue of the second award in respect of the same dispute, it relied on Indiabulls Housing Finance Limited v. Deccan Chronicle Holdings Limited & Ors. (2018 14 SCC 783) wherein it was held that even prior arbitration proceedings are not a bar to proceedings under the Non-Performing Assets Securitization Act, 2002 (hereinafter referred to as the “NPA Act”). The NPA Act sets out an expeditious, procedural methodology enabling financial institutions to take possession and sell secured properties for non-payment of dues. Such powers could not be exercised through arbitral proceedings. Moreover, once a specific plea taken was dealt with and answered in the impugned Order, then any grievance against the findings might be subject to an appeal but not a review.

 Regarding the issue of reliance on the overruled decision of HDFC Bank, it went on to comment on the competence to decide the arbitrability of disputes. It relied on Vidya Drolia wherein it was observed that:

 

“The stage of referral u/s 11 is not the stage for the court to enter into a mini-trial or an elaborate review who has to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold the integrity and efficacy of arbitration as an Alternate Dispute Resolution Mechanism.”

It further opined, relying on Hero Fincorp. Limited vs. Techno Trexim (I) Pvt. Ltd. & Ors. (MANU/DE/4581/2022)that the RDB Act u/s 19 provides that an application under the Act might be made by a Bank or Financial Institution. Section 17 of the RBD Act is limited to examining whether the action initiated by the Petitioner is as per Section 13(4) of the Act and nothing more. So, the proceedings under SARFAESI Act were not the proceedings under RDB Act. Hence, even if an action is taken u/s 17 of the RBD Act by filing a petition before DRT, it would not preclude the initiation of arbitration proceedings by the petitioner (borrower) as per law:

 “From Section 11 of SARFAESI Act itself, it is evident that the resolution of disputes through arbitration is recognized even under the SARFAESI Act and there is no absolute bar of referral of such disputes which may be covered under the SARFAESI Act by way of arbitration.”

 

The decision of the Court:

The Bench concluded firstly, the review petition was not maintainable under the law; secondly, the grounds for review as agitated in the application were more in the realm of appeal and not amenable to review. Thirdly, there was no error apparent on the face of the record nor were the findings in contravention of the observations made in Vidya Drolia(Supra) which was the main ground for seeking review.

It also observed that any observation made therein while deciding an application u/s 11 was without prejudice and the parties were at liberty to raise these objections regarding the competence and arbitrability of the dispute u/s 16 of the A& C Act and it was within the domain and jurisdiction of the learned Arbitrator to decide the same as per law. Finding no merit in the Review petition, the same was dismissed.

 

Case Title: M/S Diamond Entertainment Technologies Private Limited & Ors. vs Religare Finvest Limited Through its Authorized Officer

Case No: REV. PETITION 296/2022

Coram: Hon’ble Ms. Justice Neena Bansal Krishna

 

Advocates for Petitioners: Advs. Mr. J.S. Bakshi, Mr. Praveen Sharma, Mr. Abhishek Mohan, and Mr. N. Bakshi.

Advocates for Respondent: Advs. Mr. Dhruv Chawla, Ms. Ridhi Pahuja, and Mr. Lokesh Mittal.

 

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(With input from news agency language)

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