In the case of Indiabulls Housing Finance Limited v. M/s. Deccan Chronicle Holdings Limited & Others (Civil Appeal no. 18 of 2018), the Supreme Court of India addressed the issue of whether invocation of arbitration as per the loan agreement bars initiation of any other proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) for recovery of the loan amounts and held that merely because remedy under the Arbitration Act was invoked was no ground to debar the respondent from taking recourse to the SARFAESI Act. Detailed analysis given below:
Indiabulls Housing Finance Limited (IHFL) was a sister concern of M/s. Indiabulls Financial Services Limited (IBFSL) which is a Non-Banking Financial Company under the Reserve Bank of India Act, 1934. IBFSL disbursed a loan to the M/s. Deccan Chronicle Holdings Limited & Others (Deccan) by a loan agreement (First Loan Agreement) which was secured by creating equitable mortgage over various properties of Deccan. IBFSL also disbursed a further amount to Deccan by another loan agreement (Second Loan Agreement) with again creating equitable mortgage over. Thereafter, IHFL got merged with IBFSL and the assets and liabilities of IBFSL stood vested in IHFL with IBFSL being dissolved without winding up on its amalgamation with IHFL. Pursuant to the said merger, the borrowers of IBFSL, including the Deccan, became the borrowers of the IHFL.
Deccan committed default in repaying the loans advanced to them by IBFSL and, therefore, even before the merger, IBFSL had issued loan recall notice to Deccan. Later, the loan accounts of Deccan and other co-borrowers were classified as Non Performing Assets (NPA) by IBFSL and IBFSL filed a petition in the court under Section 9 of the Indian Arbitration Act for securing the amount payable by Deccan. An ad-interim injunction restraining the Deccan and other co-borrowers therein from alienating the scheduled properties to third parties in any manner was passed.
IHFL having stepped into the shoes of IBFSL in respect of the debts owed to IBFSL, issued notice to Deccan and other co-borrowers. This was followed by another notice in respect of taking over symbolic possession of the mortgaged properties. This notice of IBFSL was challenged by Deccan in the Debt Recovery Tribunal (DRT). Deccan also filed a writ petition in High Court challenging, inter alia, the declaration of the account as NPA and passing of ad-interim injunction. However, Deccan withdrew its petition before DRT and therefore, IHFL issued an auction notice informing the Deccan that auction of one of its mortgaged properties would be conducted. This was contested by Deccan in High Court. Due to certain events, the auction was cancelled and a notice for another auction was called issued. Meanwhile auction for other properties was also called was also served. The High Court set aside the entire invocation of the SARFAESI Act by IHFL.
High Court Proceedings
The High Court, along with other findings, held that the fact that after IBFSL had invoked the provisions of Section 9 of the Arbitration Act and filed petitions in this behalf, having regard to the arbitration agreement between the parties, it was not open to IHFL to take recourse to the provisions of SARFAESI Act .
The Court held that merely because IBFSL had filed applications under Section 9 of the Arbitration Act, would not create a bar for proceeding under the SARFAESI Act. Further the Court observed that it is not correct to say that proceedings under the SARFAESI Act cannot be placed on high pedestal. SARFAESI Act is a special enactment which was enacted by the Indian Parliament to provide speedy remedy to the banks and financial institutions without recourse to the court of law. On the other hand, the Arbitration and Conciliation Act, in contrast, is a statute of general nature. Merely because steps are taken under this general law would not mean that remedy under the special statute is foreclosed.
The Court relied on its earlier dictum of Transcore v. Union of India & Anr. ((2008) 1 SCC 125). In that case, after analysing the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Court inter alia held that simply because remedy under the provisions of the DRT Act was availed would not mean that the financial institution was precluded from taking steps under SARFAESI Act.
Further, the Court found the present case on equal footing as M.D. Frozen Foods Exports Pvt. Ltd. & Ors. v. Hero Fincorp Ltd. ((2017) SCC Online SC 1211), where the Court addressed the issue of “Whether the arbitration proceedings initiated by the respondent can be carried on along with the SARFAESI proceedings simultaneously?” along with other issues and held that merely because remedy under the Arbitration Act was invoked was no ground to debar the respondent from taking recourse to the SARFAESI Act.
Along with other conclusions, with regard to the issue of arbitration is concerned the Court inter alia held that initiation of arbitration proceedings does not put an embargo on other remedies available under special statutes like SARFAESI Act.