Case title:
Tata Capital Finance Limited v. Shri Chand Construction and Apartment Pvt. Ltd.
Date of Order:
24th November, 2021
Bench:
JUSTICE VIPIN SANGHI and. JUSTICE JASMEET SINGH
Parties:
Petitioner- TATA CAPITAL HOUSING FINANCE LTD
Respondent- SHRI CHAND CONSTRUCTION AND APARTMENT
SUBJECT
The High Court of Delhi ("Court") received an appeal from Tata Capital Housing Finance Ltd. ("Appellant") challenging an order by a single judge of the Court dated March 4, 2020 ("Impugned Order").
IMPORTANT PROVISIONS
Arbitration & Conciliation Act, 1996:
Section 8: Power to refer parties to arbitration where there is an arbitration agreement
OVERVIEW
- A request made by the appellant under Section 8 of the Arbitration & Conciliation Act, 1996 ("Act") was denied by the Court by the impugned order.
- In order to obtain loans totaling INR 23 million and INR 0.8 million from the Appellant, Shri Chand Construction and Apartment Pvt. Ltd. ("Respondent") entered into two different loan agreements with the Appellant in 2017.
- Original title deeds to an immovable property were deposited by the Respondent with the Appellant as security.
- In 2018, the Respondent requested the Appellant to return the original title deeds to the property and paid off the loan balances owed under both loan agreements.
- The original title deeds were never given back to the Respondent by the Appellant. In a civil lawsuit, the Respondent asked the court to award damages in the amount of INR 34 million.
- The loan agreements did, however, contain an arbitration clause, so the Appellant submitted an application under Section 8 of the Act to have the Respondent ordered to submit its claim to arbitration.
- By its Impugned Order, the single judge found that Section 7 of the Act, which defines a "arbitration agreement," does not apply to clauses that direct one party's claims to be resolved through arbitration while leaving the other party's claims to be resolved in any other way.
- Splitting of claims and causes of action is prohibited by public policy, thus doing so would be against it. The arbitration clause was therefore unenforceable.
ISSUES RAISED
Whether an arbitration clause allowing for the termination of the arbitration at the request of one party is permissible in a legal arbitration agreement?
JUDGEMENT ANALYSIS
- The Court's ruling that the arbitration clause, which granted one party an exclusive right and a unilateral choice, was unlawful is consistent with previously decided cases.
- Arbitration agreements must include mutuality, which the Court correctly upheld.
- Arbitration clauses that grant uneven and/or unilateral rights to just one of the parties worsen the imbalance of power between the parties and limit the access of underprivileged parties to just justice.
- Also prohibited by Section 28 of the Indian Contract Act of 1872 are such unilateral option clauses.
- Additionally, dividing claims arising from the same clearly established legal connection would lead to multiple hearings, multiple causes of action, and the potential of contradicting judgements.
- Additionally, this would be against established legal precedent laid down in the 1908 Code of Civil Procedure.
CONCLUSION
- The Court maintained the single judge's ruling that the arbitration agreement lacked "mutuality" and was therefore illegal.
- The arbitration clause was written in such a way that it would no longer apply in the event that the appellant decided to enforce the security, giving the appellant the opportunity to forego and void arbitration.
- The arbitration clause lacked "mutuality," which is a necessary component of an arbitration agreement, because it did not grant the respondent any equivalent rights. Both parties must have the ability to request the referral of disputes to arbitration for the arbitration agreement to be deemed valid.
- It was determined that the arbitration clause was unlawful since it only granted the Appellant the ability to withdraw from the arbitration and did not grant the Respondent any comparable powers.
- The Court ruled that an arbitration clause that calls for the arbitration of one party's claims while giving the other party the right to file a lawsuit or seek other remedies in connection with the same clearly defined legal relationship is invalid.
- Therefore, the Court rejected the appeal and maintained the judge's judgement to deny the application's request under Section 8 of the Act.
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