Matters covered by special laws creating special rights, to be enforced by special forums under special procedures are non-arbitrable

Bell Finvest India Limited Vs A U Small Finance Bank Limited (Delhi High Court)

Conclusion: Delhi High Court held that the remedy of arbitration provided in section 11 of the SARFAESI Act cannot override the special remedies stipulated under the set of special laws, and therefore even statutory arbitration cannot derogate from a remedy available to a lender for enforcing a security interest and the ^“doctrine of election^” is simply not available. Quite clearly, matters covered by special laws, which create special rights, to be adjudicated and enforced by special forums, under special procedures, in this case the DRT, are non-arbitrable.

Facts: The present petition was filed under section 11 of the Arbitration & Conciliation Act, 1996, the petitioners seek appointment of an arbitrator to adjudicate upon the disputes that are stated to have arisen with the respondent from Rupee Facility Agreement dated 26.04.2019 (^“Rupee Facility Agreement^”).

As per petitioner No. 1, they are an NBFC registered with the Reserve Bank of India, and is accordingly a ^“financial institution^‟ within the meaning of section 2(1)(m)(iv) of the SARFAESI Act, which entitles the petitioners to invoke arbitration under section 11 of the SARFAESI Act, since the latter provision amounts to a statutory arbitration agreement for settlement of disputes “amongst … the bank, or financial institution, or asset reconstruction company or qualified buyer … ” . The submission is that since the dispute in the present case is between petitioner No. 1, an NBFC, and the respondent, which is a bank, and they are both entities referred to in section 11 of the SARFAESI Act, their inter-se disputes are amenable to arbitration under section 11. That the proceedings filed by the respondent before the learned Debt Recovery Tribunal cannot stand in the way of the petitioners invoking the remedy in arbitration.

The Respondent submitted that the Respondent^’s claim against the petitioners is simply for recovery of a debt due by petitioner No. 1 to the respondent; and the dispute is a simple debtor-creditor dispute, with petitioner No. 1 being a “borrower” within the meaning of section 2(1)(f) of the SARFAESI Act. It is submitted that even though petitioner No. 1 is a “financial institution” as defined under section 2(1)(m) of the SARFAESI Act, it also comes within the ambit of a “borrower” since the respondent has extended financial assistance to petitioner No. 1. That the present dispute is a simple case of credit default on the part of petitioner No. 1, against which the respondent is entitled to enforce the security interest created it its favour under the SARFAESI Act, which is a special legislation for securitization and reconstruction of financial assets and for enforcement of security interests. The respondent has invoked its remedies before the learned DRT, which tribunal is seized of the matter and hearings before it are at the final stages. That if the dispute was arbitrable, the petitioners ought to have availed remedies under the A&C Act; but instead, the petitioners themselves have chosen to approach the Civil Court in Rohini by way of Civil Suit, and have therefore ^“elected^” the remedy of a civil forum and thus abandoning arbitration.

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