Writ Against Order Under Section 16 Of A&C Act; Maintainable Only In Exceptional Cases: Delhi High Court Reiterates

The bench of Justice Prathiba M. Singh held in view of the Supreme Court judgment in Vidya Drolia, the disputes falling under RDB Act, 1993 would be non-arbitrable as the DRT would have the exclusive jurisdiction to decide these matters, however, the Court would not interfere with the arbitral proceedings unless it is ex-facie clear that the dispute falls under the RBD Act.

The Court held that when the bank enters into a partnership agreement with another entity with the objective to promote each other’s business, it may not be engaging in a banking activity, therefore, the amount due to bank qua these agreements may not be a ‘debt’ within the meaning of Section 2(g) of RDB Act, 1993.

Facts

The petitioner (IDFC Bank) and respondent (Hitachi MGRM Net Limited) entered into two agreements dated 15.05.2017. These agreements were titled Strategic Partnership Agreement (‘SPA’) and Business Development Agreement (‘BDA’). In terms of these agreement, the parties agreed to promote the business affairs of each other. The roles and responsibilities of both the parties included promoting business linkages and products and providing user base to the Bank, providing and promoting educational products and services including service platforms, customer services, training staff, ensuring highly secured and safe banking and financial services etc

Disputes arose between the parties and accordingly the agreements stood terminated. However, according to the Petitioner, the Respondent was to refund an amount of Rs. 15 crore which had been paid as an advance. As the Respondent failed to refund the same, the Petitioner invoked arbitration on 28.06.2019. However, when the dispute was pending adjudication before the arbitral tribunal, the Supreme Court delivered its judgment in Vidya Drolia wherein the SC held that disputes under the RDB Act, 1993 are not arbitrable as the DRT has exclusive jurisdiction to adjudicate those disputes.

Accordingly, the petitioner filed an application before the tribunal under Section 16 of the A&C Act on the ground that in view of the SC judgment, the dispute has become non-arbitrable and the tribunal has lost its jurisdiction. However, the tribunal rejected the application. Aggrieved by the order of the tribunal, the petitioner challenged the order under Article 226 of the Constitution.

Grounds of Challenge

The petitioner challenged the order on the following grounds:

• That the impugned order passed by the Arbitral Tribunal is liable to be challenged under Article 226/227 of the Constitution of India as there is inherent lack of jurisdiction on the part of the Arbitral Tribunal in the light of Vidya Drolia.
• That the definition of `debt’ under Section 2(g) of the RDB Act, 1993 is wide enough to cover the scope of services which were contemplated under the agreements. Thus, the Debt Recovery Tribunal would have jurisdiction.
• That Section 19(8) of the RDB Act,1993 deals with the rights of the Respondent viz. the right of pleading a set off and filing a counter claim against the claim. Hence, the rights of the Respondent would be protected and are in no way prejudiced.
• Further the question as to whether the liability under the present dispute is a debt cannot be decided by the Arbitral Tribunal because on the face of the provisions i.e., Section 6 and Section 2(g) of the RDB Act,1993 are covered by banking activities.

Analysis by the Court

The Court held that the order of the arbitral tribunal rejecting an application under Section 16 of the Act is not an appealable order under Section 37 of the Act and only the order of the tribunal accepting the Section 16 application is appealable under the aforementioned Section.

The Court referred to the judgments of the Supreme Court in Deep Industries Ltd. v ONGC Ltd. (2020) 15 SCC 706 and Bhaven Construction v. Executive Engineer 2022) 1 SCC 75 wherein the Hon’ble Apex Court held that a party aggrieved by an order of the arbitral tribunal refusing to grant relief under Section 16 of the Act has to await the completion of the arbitral proceedings and challenge the award under Section 34 of the Act. Further, the Court held that Section 5 of the Act is not a bar to the Writ Jurisdiction of the Court, however, the power under Article 226/227 must be used by the Court only in exceptional circumstances when the order was patently illegal or perverse on the face of it or the tribunal lacked the jurisdiction to pass such orders.

The Court held in view of the Supreme Court judgment in Vidya Drolia, the disputes falling under RDB Act, 1993 would be non-arbitrable as the DRT would have the exclusive jurisdiction to decide these matters, however, the Court would not interfere with the arbitral proceedings unless it is ex-facie clear that the dispute falls under the RBD Act.

The Court held that when the bank enters into a partnership agreement with another entity with the objective to promote each other’s business, it may not be engaging in a banking activity, therefore, the amount due to bank qua these agreements may not be a ‘debt’ within the meaning of Section 2(g) of RDB Act, 1993.

Accordingly, the Court held that it was not an exceptional circumstance for the Court to exercise its powers under Article 226 and set aside the order of the tribunal. The Court directed the parties to appear before the tribunal and raise all the objections before it.

Case Title: IDFC First Bank Limited v. Hitachi MGRM Net Limited

Citation: 2023 LiveLaw (Del) 601

Date: 11.07.2023

Counsel for the Petitioner: Mr. Parag P. Tripathi, Senior Advocate with Mr. Dhruv Malik, Ms. Sharmistha Ghosh, Ms. Palak Nenwani, Ms. Aditi Sinha, Ms. Mishika Bajpai, Advocates

Counsel for the Respondent: Mr. Ashish Bhagat, Mr. Ritik Malik, Mr. Akhil Suri, Mr. Udit Thakran, and Mr. Jitu Khare.

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