Disputes Which Are To Be Adjudicated By DRTs Are Not Arbitrable: Supreme Court Overrules 2012 Delhi HC Judgment

Overruling a Full Bench decision of Delhi High Court, the Supreme Court has observed that the disputes which are to be adjudicated by the Debt Recovery Tribunal [DRT] under the DRT Act are non-arbitrable.

To hold that the claims of banks and financial institutions covered under the DRT Act are arbitrable would deprive and deny these institutions of the specific rights including the modes of recovery specified in the DRT Act, the bench comprising Justices NV Ramana, Sanjiv Khanna and Krishna Murari observed while overruling Delhi High Court judgment in HDFC Bank Ltd. v. Satpal Singh Bakshi.

Delhi HC Judgment

According to the High Court, a judgment/decision of the Debt Recovery Tribunal deciding a particular claim can never be "right in rem‟ and is a „right in personam‟ as it decides the individual case/claim before it with no elements of any public interest. "A claim of money by the bank or financial institution against the borrower cannot be treated as "right in rem‟. Each claim involves adjudication whether, on the facts of that case, money is payable by the borrower to the bank/financial institution and if so to what extent. Each case is the decision on the facts of that case with no general ramifications", it was held by the Full Bench then headed by Justice AK Sikri.

To hold that such disputes are arbitrable, the court had also observed that the Debt Recovery Tribunal is supposed to apply the same law as applied by the civil courts in deciding the dispute coming before it and is enforcing contractual rights of the Banks.

There is a prohibition against waiver of jurisdiction of the DRT by necessary implication

In the judgment delivered on Monday (14 December 2020), court was answering a reference from a two judge bench which had doubted the dictum laid down in Himangni Enterprises v. Kamaljeet Singh Ahluwalia (2017) 10 SCC 706 that landlord-tenant disputes governed by the provisions of the Transfer of Property Act, 1882, are not arbitrable as this would be contrary to public policy.

Referring to Transcore v. Union of India, the bench observed that the DRT Act is a complete code by itself as far as recovery of debt is concerned. The bench added that the doctrine of election to select arbitration as a dispute resolution mechanism by mutual agreement is available only if the law accepts existence of arbitration as an alternative remedy and freedom to choose is available. The bench observed:

"When arbitration cannot enforce and apply such rights or the award cannot be implemented and enforced in the manner as provided and mandated by law, the right of election to choose arbitration in preference to the courts or public forum is either completely denied or could be curtailed. In essence, it is necessary to examine if the statute creates a special right or liability and provides for the determination of each right or liability by the specified court or the public forum so constituted, and whether the remedies beyond the ordinary domain of the civil courts are prescribed. When the answer is affirmative, arbitration in the absence of special reason is contraindicated. The dispute is non-arbitrable."

Disagreeing with the High Court ruling, the bench observed that there  is a prohibition against waiver of jurisdiction of the DRT by necessary implication. It said:

"Decision in HDFC Bank Ltd. holds that only actions in rem are non-arbitrable, which as elucidated above is the correct legal position. However, non-arbitrability may arise in case the implicit prohibition in the statute, conferring and creating special rights to be adjudicated by the courts/public fora, which right including enforcement of order/provisions cannot be enforced and applied in case of arbitration. To hold that the claims of banks and financial institutions covered under the DRT Act are arbitrable would deprive and deny these institutions of the specific rights including the modes of recovery specified in the DRT Act. Therefore, the claims covered by the DRT Act are non-arbitrable as there is a prohibition against waiver of jurisdiction of the DRT by necessary implication. The legislation has overwritten the contractual right to arbitration"

 CASE: VIDYA DROLIA vs. DURGA TRADING CORPORATION [ CIVIL APPEAL NO. 2402 OF 2019 ]
CORAM: Justices NV Ramana, Sanjiv Khanna and Krishna Murari 

Also Read : Allegations Of Fraud Arbitrable When They Relate To Civil Dispute: Supreme Court Overrules 'N Radhakrishnan' Judgment

Landlord-Tenant Disputes Under Transfer Of Property Act Arbitrable Except When Covered By Rent Control Laws : Supreme Court

Expression 'Existence Of Arbitration Agreement' In Section 11 Of Arbitration Act Includes Aspect Of Validity Of Agreement : Supreme Court

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