M/S. Singh Finlease Pvt. Ltd. Vs Mr. Bablu & Ors.

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IN THE HIGH COURT OF DELHI AT NEW DELHI

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+ ARB.P. 418/2025

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Date of Decision : 28.07.2025

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IN THE MATTER OF:

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M/S. SINGH FINLEASE PVT. LTD. THROUGH ITS AUTHORISED REPRESENTATIVE MR. ROHAN KUMAR A-29, MANGOL PURI INDUSTRIAL AREA, PHASE –II, NEW DELHI- 110034

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..... PETITIONER

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Through: Mr.Murari Kumar and Mr.Shiv Shankar, Advocates.

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Versus

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MR. BABLU (BORROWER) R/O. HOUSE NO. 539, 3RD FLOOR, GALI NO.1, SRI NAGAR, SHAKURBASTI DELHI-110034

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MRS. JANAK DULARI (CO-BORROWER) R/O. HOUSE NO. 539, 3RD FLOOR, GALI NO.1, SRI NAGAR, SHAKURBASTI DELHI-110034

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MR. DEVENDER SHARMA (CO-BORROWER) R/O. HOUSE NO. 539, 3RD FLOOR, GALI NO.1, SRI NAGAR, SHAKURBASTI DELHI-110034

.... RESPONDENTS

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Through: None.

HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV

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JUDGEMENT

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PURUSHAINDRA KUMAR KAURAV, J. (ORAL)

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The present petition has been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (the 1996 Act) by the petitioner, seeking appointment of an Arbitrator, to adjudicate upon the disputes that have arisen between the parties under the Loan Agreement dated 29.02.2020.

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The instant matter was earlier called out on 05.03.2025 and the Court has directed for issuance of notice. On 01.04.2025, one Mr.Sumit Goswami, learned counsel appeared on behalf of the respondents and sought time to file the reply. It appears that thereafter on 24.04.2025, when the matter was called out, no one appeared on behalf of the respondents. The Court, therefore, directed for fresh service of notice on the respondents. Pursuant thereto, learned counsel for the petitioner has filed affidavit of service, which reads as under:-

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“AFFIDAVIT OF SERVICE

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I, Nilesh Kumar, S/o. Sh. Mukesh Prasad Singh, Aged about 33 years, working as the counsel for the Petitioner and having office at:-G-27, First Floor, Jangpura Extension, New Delhi- 110014; do hereby solemnly affirm and declare as under:-

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1 . That I am the counsel for the petitioner and am fully conversant with the facts and circumstance of the case and am competent to swear and

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depose the present affidavit of service.

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2. That the Respondent No.1 have been served a copy of the petition along with documents by way of e-mail dated 28.02.2025 sent from [email protected] to [email protected] at 03:49 PM. The said E-mail has been delivered and has not bounced back. Copy of the e-mail dated 28.02.2025 has been annexed in the plaint at Page No.74.”

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Learned counsel for the petitioner contended that the service of notice has been sent on email ID, which is forming part of the agreement.

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In view of the aforesaid, the Court treats the service to be completed on the respondents. Since, no one appears on behalf of the respondents despite service, the matter is taken up for final disposal.

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The facts of the case would indicate that the petitioner is a NonBanking Financial Company (NBFC) regulated by the Reserve Bank of India (RBI). As per the case set up by the petitioner, the respondents has approached the petitioner to avail of a loan facility and it sactioned a loan to the respondents for a sum of Rs.10,56,110/-(Rupees Ten Lakhs Fifty-Six Thousand One Hundred Ten Rupees Only). The said loan amount was agreed to be paid in monthly EMIs to be payable on the 10^th of each month. Thereafter, the petitioner entered into a Loan Agreement dated 29.02.2020 with the respondents, whereby, respondent no.1 stood as a principal borrower, and respondent nos.2 and 3 were the co-borrowers. It is submitted on behalf of the petitioner that the respondents have failed to comply with the terms outlined under the Amortization Schedule and Schedule II of the Loan Agreement dated 29.02.2020 and breached the loan agreement under clauses 3.5, 6.1, 6.8 and clause 8 of the loan agreement. Thereafter, the

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petitioner has terminated the existing loan facility vide Loan Recall Notice dated 30.03.2023.

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It is also stated that the respondents continued to disregard the outstanding dues, and therefore, the petitioner has issued a Legal Notice dated 13.12.2024 invoking an arbitration clause (Clause 21) of Loan Agreement dated 29.02.2020, seeking the appointment of a Sole Arbitrator.

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The Court takes note of Clause 21 of the Loan Agreement dated 29.02.2020, which reads as under:-

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“„Clause 21.

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21. All dispute, differences and/ or claim arising out of these presents Including any dispute as to any amount outstanding, or in any way touching or as to the right and liabilities of the parties hereunder shall be settled by arbitration to be held in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any statutory amendments thereof and shall be referred to the arbitration of a sole arbitrator, to be nominated by SFPL only and borrower shall have no rightto object the appointment of said Arbitrator. In the event of death, refusal, neglect, inability or incapability of a person so appointed to act as an arbitrator, SFPL may appoint a new arbitrator. The award ofthe arbitrator shall be final and binding on all parties concerned. The arbitration shall be final be final and binding on all parties concerned. The arbitration proceedings shall be held at Delhi and the arbitration shall be conducted in English language.”

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The law with respect to the scope and standard of judicial scrutiny under Section 11(6) of the 1996 Act has been fairly well settled. This Court as well in the order dated 24.04.2025 in the case of ARB.P. 145/2025 titled as Pradhaan Air Express Pvt Ltd v. Air Works India Engineering Pvt Ltd has extensively dealt with the scope of interference at the stage of Section

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11. The Court held as under:-

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“9. The law with respect to the sc under Section 11(6) of the 1996 Act has been fairly well settled. The Supreme Court in the case of SBI General Insurance Co. Ltd. v. Krish Spinning¹ , while considering all earlier pronouncements including the Constitutional Bench decision of seven judges in the case of Interplay between Arbitration Agreements under the Arbitration & Conciliation Act, 1996 & the Indian Stamp Act, 1899 , In re² has held that scope of inquiry at the stage of appointment of an Arbitrator is limited to the extent of prima facie existence of the arbitration agreement and nothing else.

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10. It has unequivocally been held in paragraph no.114 in the case of SBI General Insurance Co. Ltd that observations made in Vidya Drolia v. Durga Trading Corpn.³ , and adopted in NTPC Ltd. v. SPML Infra Ltd. ,⁴ that the jurisdiction of the referral court when dealing with the issue of “accord and satisfaction” u out ex-facie non-arbitrable and frivolous disputes would not apply after the decision of Re: Interplay . The abovenoted paragraph no.114 in the case of SBI General Insurance Co. Ltd reads as under:-

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“114. In view of the observations Re: Interplay (supra), it is clear that the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement, and nothing else. For this reason, we find it difficult to hold that the observations made in Vidya Drolia (supra) and adopted in NTPC v. SPML (supra) that the jurisdiction of the referral court when dealing with the issue of “accord and satisfaction” under S weeding out ex-facie non-arbitrable and frivolous disputes would continue to apply despite the subsequent decision in In Re: Interplay (supra).”

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11. Ex-facie frivolity and dishonesty are the issues, which have been held to be within the scope of the Arbitral Tribunal which is equally capable of deciding upon the appreciation of evidence adduced by the parties. While considering the aforesaid pronouncements of the Supreme

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1 2024 SCC OnLine SC 1754

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2 2023 SCC OnLine SC 1666.

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3 (2021) 2 SCC 1.

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4 (2023) 9 SCC 385.

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Court, the Supreme Court in the case of Goqii Technologies (P) Ltd. v. Sokrati Technologies (P) Ltd.⁵ , however, has held that the referral Courts under Section 11 must not be misused by one party in order to force other parties to the arbitration agreement to participate in a timeconsuming and costly arbitration process. Few instances have been delineated such as, the adjudication of a non-existent and malafide claim through arbitration. The Court, however, in order to balance the limited scope of judicial interference of the referral Court with the interest of the parties who might be constrained to participate in the arbitration proceedings, has held that the Arbitral Tribunal eventually may direct that the costs of the arbitration shall be borne by the party which the Arbitral Tribunal finds to have abused the process of law and caused unnecessary harassment to the other parties to the arbitration.

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12. It is thus seen that the Supreme Court has deferred the adjudication of aspects relating to frivolous, non-existent and malafide claims from the referral stage till the arbitration proceedings eventually come to an end. The relevant extracts of Goqii Technologies (P) Ltd. reads as under:-

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“20. As observed in Krish Spg. [SBI General Insurance Co. Ltd. v. Krish Spg., (2024) 12 SCC 1 : 2024 SCC OnLine SC 1754 : 2024 INSC 532] , frivolity in litigation too is an aspect which the referral court should not decide at the stage of Section 11 as the arbitrator is equally, if not more, competent to adjudicate the same.

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21. Before we conclude, we must clarify that the limited jurisdiction of the referral courts under Section 11 must not be misused by parties in order to force other parties to the arbitration agreement to participate in a time consuming and costly arbitration process. This is possible in instances, including but not limited to, where the claimant canvasses the adjudication of non-existent and mala fide claims through arbitration.

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22. With a view to balance the limited scope of judicial interference of the referral courts with the interests of the parties who might be constrained to participate in the arbitration proceedings, the Arbitral Tribunal may direct that the costs of the arbitration shall be borne by the party which the Tribunal ultimately finds to have abused the process of

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5 (2025) 2 SCC 192

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law and caused unnecessary harassment to the other party to the arbitration. Having said that, it is clarified that the aforesaid is not to be construed as a determination of the merits of the matter before us, which the Arbitral Tribunal will rightfully be equipped to determi ne.”

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13. In view of the aforesaid, the scope at the stage of Section 11 proceedings is akin to the eye of the needle test and is limited to the extent of finding a prima facie existence of the arbitration agreement and nothing beyond it. The jurisdictional contours of the referral Court, as meticulously delineated under the 1996 Act and further crystallised through a consistent line of authoritative pronouncements by the Supreme Court, are unequivocally confined to a prima facie examination of the existence of an arbitration agreement. These boundaries are not merely procedural safeguards but fundamental to upholding the autonomy of the arbitral process. Any transgression beyond this limited judicial threshold would not only contravene the legislative intent enshrined in Section 8 and Section 11 of the 1996 Act but also risk undermining the sanctity and efficiency of arbitration as a preferred mode of dispute resolution. The referral Court must, therefore, exercise restraint and refrain from venturing into the merits of the dispute or adjudicating issues that fall squarely within the jurisdictional domain of the arbitral tribunal. It is thus seen that the scope of enquiry at the referral stage is conservative in nature. A similar view has also been expressed by the Supreme Court in the case of Ajay Madhusudan Patel v. Jyotrindra S. Patel”⁶ .

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In view of the fact that disputes have arisen between the parties and there is an arbitration clause in the contract, this Court is inclined to appoint an Arbitrator to adjudicate upon the disputes between the same.

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Accordingly, Mr. Kartikeya Bhargava, Advocate (Mobile No.+91 8130834222, e-mail id:- [email protected] ) is appointed as the sole Arbitrator.

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The Sole Arbitrator may proceed with the arbitration proceedings,

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6 (2025) 2 SCC 147.

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subject to furnishing to the parties the requisite disclosures as required under Section 12 of the Arbitration and Conciliation Act.

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The Sole Arbitrator shall be entitled to fee in accordance with the IV^th Schedule of the Arbitration and Conciliation Act or as may otherwise be agreed to between the parties and the learned Sole Arbitrator.

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The parties shall share the arbitrator's fee and arbitral cost, equally.

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All rights and contentions of the parties in relation to the claims/counter claims are kept open, to be decided by the Sole Arbitrator on their merits, in accordance with law.

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Needless to state, nothing in this order shall be construed as an expression of opinion of this Court on the merits of the controversy. All rights and contentions of the parties in this regard are reserved. Let the copy of the said order be sent to the newly appointed Arbitrator through the electronic mode as well.

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16. Accordingly, the instant petition stands disposed of.

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PURUSHAINDRA KUMAR KAURAV, J

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JULY 28, 2025 Nc/sph

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M/S. Singh Finlease Pvt. Ltd. v. Mr. Bablu & Ors.

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M/S. Singh Finlease Pvt. Ltd. v. Mr. Bablu & Ors.

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