Debt Acknowledged In Letters, Delhi High Court Grants Benefit Of Section 18 To Hold Invocation Of Arbitration Within Limitation

The bench of Justic Prathiba M. Singh held that such an acknowledgement would give rise to a fresh cause of action and the period of limitation would run afresh from the date of such acknowledgement as provided under Section 18 of the Limitation Act.

Facts

The Parties entered into an agreement dated 24.03.2018, wherein M/s. Paisalo Digital Limited (Petitioner) granted loans totaling Rs.12 crores to M/s. Sat Priya Mehamia Memorial Educational Trust (Respondent No.1).

The loans carried an interest rate of 17% per annum, repayable in 60 monthly installments. Respondent Nos. 2 to 7 stood as guarantors for the loans. A land admeasuring 30 bighas was also mortgaged as a security for the loan.

Despite several notices, the Respondents failed to meet their obligations, leading to the Petitioner recalling the loan. Consequently, Respondents' account was declared as NPA. Thereafter, the petitioner issued a notice under Section 13(2) of the SARFAESI Act and also filed an application under Section 14 of the Act seeking possession of the mortgaged propert. The district Court rejected the application filed under Section 14.

Pursuant thereto, the Petitioner filed a petition seeking interim reliefs under Section 9 of the Act, and also filed a petition seeking appointment of arbitrator under Section 11 of the Act without disclosing the fact regarding dismissal of petition under Section 14 of the SARFAESI Act.

Submissions by the Parties

The respondent made the following objections:

• Petitioner changed the outstanding amount, initially stated as approximately Rs.15.94 crores, later claimed to be Rs.23.20 crores, with a late payment fee exceeding Rs.54 crores, totaling over Rs.76 crores against the initial Rs.12 crores loan.
• That the late fee exceeded 125% interest per annum, which is illegal.
• That invocation of arbitration is time barred since the dispute arose much before the expiry of the 3 year limitation period.
• Application for interim relief is not maintainable due to pendency of SARFAESI proceedings.

The petitioner made the following counter-submissions:

• The debt is already acknowledged in a letter dated 21.05.2019, therefore, benefit of Section 18 must be given to hold invocation within time.
• The benefit of Supreme Court's order extending limitation must also be given.

Analysis by the Court

The court noted that the Petitioner failed to disclose the SARFAESI proceedings in the Section 9 petition, which is a discretionary relief, and non-disclosure is considered critical.

The court considered whether the SARFAESI proceedings would bar the filing of a Section 9 petition. It held that pendency of proceedings under SARFASI Act is not a bar on initiation of proceedings under A&C Act, especially if the mortgaged property is insufficient to clear the outstanding amount.

The court emphasized that SARFAESI proceedings and arbitration proceedings provide cumulative remedies and are not in conflict with each other.

The court held that the Petitioner had a duty to disclose the SARFAESI proceedings in the Section 9 petition and that there was no justification for concealment of such a material fact.

The court considered the letter dated 21.05.2019, as an acknowledgment of debt, constituting a fresh cause of action, and thus, not barred by limitation. It held that assurance given by a party to repay the debts in letter issued to the other party would amount to an acknowledgement of the debt within the meaning of Section 18 of the Limitation Act. It held that such an acknowledgement would give rise to a fresh cause of action and the period of limitation would run afresh from the date of such acknowledgement as provided under Section 18 of the Limitation Act.

The court excluded the period between 15th March, 2020, and 28th February, 2022, as per the decision of the Supreme Court, thereby holding that the claims were not barred by limitation.

The court noted the excessive late fee charged by the Petitioner and stated that the issue could be raised before the Arbitral Tribunal. The court imposed costs of Rs.5 lakhs on the Petitioner for non-disclosure of the SARFAESI proceedings, to be deposited with the Delhi High Court Staff Welfare Fund.

Accordingly, the Court disposed of the application under Section 9 by permitting the respondent to deposit 21.9 crores with the Registrar of the Court and vacated the interim order restraining it from alienating the mortgaged property.

The Court allowed the petition seeking appointment of Arbitrator and appointed Justice (Retd.) U.U. Lalit as the sole arbitrator.

Case Title: Paisalo Digital Limited v. Sat Priya Mehmia Memorial Educational Trust

Citation: 2024 LiveLaw (Del) 475

Date: 03.04.2024

Counsel for the Petitioner: Mr. Apratim Animesh Thakur, Mr. Varun Singh & Mr.Lakshya Sachdeva, Advs.

Counsel for the Respondent: Mr. Manish Gupta, Mr. Neelmani Guha, Ms. Harshal Gupta, Ms. Deepti Verma, Mr. Prateek Gupta, Mr. Sanjay Mangal & Mr. P.C. Gupta, Advs.

Click Here To Read/Download Order