Section 31 Of The Credit Information Companies (Regulation) Act, 2005 Does Not Bar Constitution Of An Arbitral Tribunal: Madras High Court

The Single bench of Justice Senthilkumar Ramamoorthy held that the object and purpose of Section 31 of the CIC Act is to preclude the parties from seeking redressal of grievances in any manner other than that prescribed under the CIC Act. It added that since Section 18 of the CIC Act provides for dispute resolution through arbitration, the provisions of Section 31 would not bar the constitution of an arbitral tribunal.

The High Court observed that since proceedings against the petitioner, who provided personal guarantee to a borrower, were initiated before the NCLT, therefore, the interim moratorium under Section 96(1) of the Insolvency and Bankruptcy Code, 2016 (the IBC) was triggered.

The Court noted that the petitioner sought to invoke arbitration, raising a dispute pertaining to the information put out by the credit information company, in respect of the alleged default made by it. The bench ruled that the arbitral tribunal cannot adjudicate upon the accuracy of the information displayed by the credit information company, without examining the scope of the personal guarantee and the liability of the petitioner.

The petitioner- Kirankumar Moolchand Jain, provided a personal guarantee in respect of the loan offered by the second respondent- Cosmos Co-operative Bank Ltd, to an entity. The petitioner alleged that the said loan was not actually disbursed to the borrower and that the first respondent- TransUnion CIBIL Ltd., placed incorrect information on its website regarding the alleged default by the petitioner in respect of the loan granted to the borrower.

Thereafter, the petitioner filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Madras High Court, seeking constitution of an arbitral tribunal in terms of Section 18 of the Credit Information Companies (Regulation) Act, 2005 (CIC Act). The petitioner sought adjudication of the dispute pertaining to the information put out by the first and second respondents, in respect of the alleged default by the borrower and the petitioner.

Disputing the maintainability of the petition, the second respondent- Cosmos Co-operative Bank, submitted before the High Court that Section 31 of the CIC Act bars the jurisdiction of the Court in relation to matters referred to in Section 18 of the CIC Act.

Section 18 of the CIC Act provides that, disputes between the credit information companies, credit institutions, borrowers and clients on matters relating to business of credit information, for which no remedy is provided under the CIC Act, shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996 (A&C Act).

As per Section 31 of the CIC Act, except the Supreme Court and the High Court exercising jurisdiction under Articles 32, 226 and 227 of the Constitution, no court or authority shall have any jurisdiction, power or authority in relation to the matters specified therein, including the matters referred to in Section 18.

The Court held that the object and purpose of Section 31 of the CIC Act is to preclude the parties from seeking redressal of grievances in any manner other than that prescribed under the CIC Act. It added that since Section 18 of the CIC Act provides for dispute resolution through arbitration, the provisions of Section 31 would not bar the constitution of an arbitral tribunal to resolve the disputes in the manner prescribed under the CIC Act.

Rejecting the objection made by the respondent towards the maintainability of the petition, on the ground that there was no arbitration agreement between the parties, the bench ruled that Section 18 of the CIC Act imports an arbitration agreement for purposes of the A&C Act, by way of a legal fiction.

The respondents argued before the Court that arbitration under Section 18 of the CIC Act is applicable only if the dispute between the parties relates to the business of credit information. The respondent added that the dispute between the parties pertaining to the information put out by the respondents, did not relate to the business of credit information. Thus, it contended that the said dispute could not be resolved through arbitration.

Noting that the 1^st respondent is a credit information company and the 2^nd respondent is a credit institution, the Court noted that the expression 'client', as defined in Section 2(c) of the CIC Act, includes a guarantor or a person who proposes to give a guarantee for a borrower of a credit institution. Thus, the bench ruled that the petitioner qualified as a client.

Referring to Section 14 of the CIC Act, which deals with the functions of a credit information company, the Court took into account that a credit information company is entitled to engage in the business of collection, processing and collation of credit information. Further, it held that under Section 19 of the CIC Act, both the credit information company and the credit institution are required to ensure that the data relating to credit information maintained by them is accurate and complete.

Thus, the bench laid down that, in view of Sections 14 and 19 of the CIC Act, a dispute between a borrower and client, on one hand, and the credit information company and credit institution, on the other, in relation to the accuracy or completeness of the credit information collected, processed or collated by them, would qualify as a dispute relating to the business of credit information. Therefore, it ruled that such a dispute may be referred for arbitration, provided no remedy is provided in respect of it under the CIC Act.

"For the reasons set out above, I conclude that the present dispute pertains to the business of credit information and, in the absence of any other remedy, resort to arbitration is permissible under Section 18 of the Act of 2005," the Court said.

The respondent- Cosmos Co-operative Bank, further contended before the Court that proceedings against the petitioner as a personal guarantor were initiated before the National Company Law Tribunal (NCLT). The respondent averred that upon initiation of such proceedings, an interim moratorium was triggered under Sections 95 and 96 of the Insolvency and Bankruptcy Code, 2016 (the IBC). It argued that the said interim moratorium would apply in respect of any legal action or proceeding, pending or initiated, in respect to any debt. Thus, it submitted that the dispute between the parties could not be referred to arbitration.

The Court observed that under Section 96(1)(b) of the IBC, the interim moratorium applies "in respect of any debt". Thus, it ruled that the interim moratorium under Section 96(1) of IBC, would apply not only to the proceedings for recovery of debt but also to proceedings in which the liability of the borrower and the guarantor are determined in relation to the credit facility.

The bench added that whether the information provided by the first and second respondents is correct or incorrect, depended upon the scope of the personal guarantee provided by the petitioner and consequently, on the liability of the petitioner.

The Court held that the arbitral tribunal cannot decide whether the information displayed by the respondents is accurate or inaccurate, without examining the scope of the personal guarantee and the liability of the petitioner. Observing that the dispute regarding the liability of the petitioner, was pending adjudication before the NCLT, the Court ruled that the constitution of an arbitral tribunal, as sought by the petitioner, was premature.

"Hence, an arbitral tribunal cannot decide whether the information is accurate or inaccurate without examining the scope of the personal guarantee(s) and the liabilities arising thereunder, and the NCLT is seized of the said dispute. Thus, the constitution of an arbitral tribunal, at this juncture, would be premature. After the moratorium ends, in case the petitioner were to succeed in the defence before the NCLT and the NCLT concludes that the petitioner did not guarantee the relevant debts, it would be open to the petitioner to initiate proceedings for the constitution of an arbitral tribunal to adjudicate the dispute relating to the credit information provided by the first and second respondents in terms of Section 18 of the Act of 2005", the Court said.

The Court thus dismissed the petition.

Case Title: Kirankumar Moolchand Jain versus TransUnion CIBIL Ltd.

Citation: 2022 LiveLaw (Mad) 461

Dated: 18.10.2022 (Madras High Court)

Counsel for the Petitioner: Mr.Aasim Shehzad for M/s.Akhil R.Bhansali

Counsel for the Respondent: M/s. S. Parthasarathy for R1; Mr. Varun Srinivasan, Ms. Vinithra Srinivasan for M/s. NVS & Associates for R2; Mr. C. Mohan for M/s. King and Partridge for R3

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