WHY IN NEWS?
On Tuesday, the Delhi High Court ruled that the borrower's decision to initiate arbitration procedures would not be affected by any action taken under Section 17 of the RBD Act by filing a petition before the DRT.
The review petition asking for a review of the Order granting the petition under Section 11 of the Arbitration and Conciliation Act, 1996, was being heard by the bench of Justice Neena Bansal Krishna. An arbitrator had been appointed to resolve the disagreements.
Mr. J.S. BAKSHI’S CONTENTIONS
Mr. J.S. Bakshi, the petitioner's attorney, claimed that the respondent had misled the court in this matter by citing the Supreme Court's decision in Vidya Drolia and Ors. v. Durga Trading Corporation in HDFC Bank Ltd. v. Satpal Singh Bakshi, which overturned the judgement in HDFC Bank Ltd. v. Satpal Singh Bakshi.
The decision in the Vidya Drolia case held that Sections 34 and 35 of the SARFAESI Act prohibit the waiver of the Debt Recovery Tribunal's (DRT) jurisdiction by necessary implication and that arbitration cannot be used to settle any controversy relating to the actions taken by Financial Institutions under the said Act.
OBSERVATIONS MADE BY THE COURT
Only those matters and actions that were pending before the Court before the Tribunal's establishment under the DRT Act and were transferred to the Tribunal are covered under Section 31. Therefore, a lawsuit brought by the borrower is exempt from Section 31 of the RDB Act, 1993.
The bench noted that "the RDB Act, 1993 under Section 19 clearly stipulates that an application under the Act may be made by a Bank or Financial Institution" after citing a few decisions.
Section 17 of the RBD Act is restricted to only determining whether the petitioner's action complies with Section 13(4) of the Act. As a result, the actions done under the SARFAESI Act are different from those taken under the RDB Act.
The High Court then examined Section 11 of the SARFAESI Act and noted that it is clear from the Section that arbitration is recognized as a valid dispute resolution method under the SARFAESI Act and that there is no absolute prohibition against referring disputes that may be covered by the SARFAESI Act for arbitration.
WHAT WAS THE ORDER?
The bench stated that the review petition is not legally viable and that the application's arguments for review are more appropriate for an appeal and not reviewable.
The High Court concluded by stating that any findings made in deciding an application under Section 11 are final and without prejudice, and that the parties are free to raise any objections to the dispute's competence and arbitrability under Section 16 of the Arbitration & Conciliation Act, 1996, and that the Arbitrator has the authority and jurisdiction to resolve the matter in accordance with the law.
Due to the aforementioned, the petition was dismissed by the bench.