Court’s Decision
The Calcutta High Court allowed the petition filed by Aditya Birla Capital Limited under Section 11 of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator in a loan recovery dispute. The Court appointed Mr. Shayak Mitra as the sole arbitrator to adjudicate the disputes arising from a loan agreement executed between the respondents and Aditya Birla Finance Limited (the predecessor entity). The Court affirmed that the merger did not extinguish the arbitration clause and held that all objections, including those related to limitation, privity of contract, and jurisdiction, were to be determined by the arbitrator.
Facts
Aditya Birla Finance Limited had extended a loan of ₹15,50,000/- to the respondents under a loan agreement dated June 29, 2023. The loan was secured by a mortgage over immovable property located in Deganga, West Bengal. The agreement provided for repayment in 180 monthly instalments of ₹23,308/-. Although a few instalments were paid initially, the respondents allegedly defaulted thereafter. As of November 5, 2024, an outstanding sum of ₹18,91,351.48/- remained unpaid.
Following the default, the petitioner terminated the loan agreement and sought interim protection under Section 9 of the Act. The Court granted an injunction on January 6, 2025, restraining the respondents from alienating or modifying the mortgaged property. This order was extended by three months on March 3, 2025. The petitioner subsequently invoked arbitration by a notice dated April 10, 2025, naming Kolkata as the seat of arbitration and suggesting three names for appointment. As the respondents failed to respond, the petitioner moved the Court for appointment of an arbitrator.
Issues
- Whether the arbitration clause survived the corporate merger and vested in Aditya Birla Capital Limited.
- Whether the petitioner could unilaterally choose Kolkata as the seat of arbitration.
- Whether objections relating to limitation, privity of contract, and joinder are maintainable at the stage of appointment under Section 11.
- Whether a case for appointment of an arbitrator under Section 11 was made out.
Petitioner’s Arguments
The petitioner submitted that Aditya Birla Finance Limited had merged with Aditya Birla Capital Limited pursuant to a National Company Law Tribunal order dated March 24, 2025. As a result, all contractual rights, liabilities, and obligations, including the arbitration clause, vested in the petitioner. It was contended that the arbitration agreement contained a jurisdiction clause that allowed the lender to select the place of arbitration, and the petitioner validly chose Kolkata. A notice invoking arbitration and naming three proposed arbitrators had been duly served on the respondents, but they failed to respond. Accordingly, the petitioner sought appointment of an arbitrator by the Court.
Respondent’s Position
Despite being duly served with notices and court orders, the respondents did not appear in the matter. The Court noted that this was the last opportunity extended to them, and the proceedings were held ex parte in their absence.
Analysis of the Law
The Court reaffirmed the principles under Section 11 of the Arbitration and Conciliation Act, 1996. It observed that upon merger, the rights and obligations of Aditya Birla Finance Limited seamlessly vested in Aditya Birla Capital Limited. Therefore, the petitioner had validly stepped into the shoes of the original lender and was competent to invoke arbitration.
Referring to Clause 22 of the loan agreement, the Court noted that the lender was granted discretion to choose the seat of arbitration. The petitioner had exercised this option by selecting Kolkata and had intimated the same to the respondents through the invocation notice dated April 10, 2025.
Further, the Court reiterated that objections regarding limitation, privity of contract, joinder or misjoinder of parties, and validity of arbitration agreement are matters for the arbitral tribunal to decide under Section 16 of the Act. The Court clarified:
“The objections available to the respondents including the issue of limitation, the calculation made by the petitioner and whether the petitioner can seek arbitration on the basis of the agreement to which the petitioner is not a signatory, shall be decided by the learned arbitrator.”
Precedent Analysis
While no case law was explicitly cited in the judgment, the Court’s reasoning aligns with well-established precedents such as:
- Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1 – Recognizing that all objections relating to arbitrability should be left to the arbitral tribunal unless the case is ex facie non-arbitrable.
- M/s. Duro Felguera S.A. v. Gangavaram Port Limited, (2017) 9 SCC 729 – Emphasizing that the role of the court under Section 11 is limited to examining the existence of an arbitration agreement.
- Larsen & Toubro v. MMRDA, (2018) 4 SCC 623 – Affirming the principle of kompetenz-kompetenz under Section 16.
Court’s Reasoning
The Court held that:
- The arbitration clause in the loan agreement was valid and binding.
- The petitioner, having succeeded the original lender upon merger, had the locus to invoke arbitration.
- The jurisdiction clause permitting lender’s discretion over the seat of arbitration was validly exercised.
- The appointment of an arbitrator was necessary due to the respondents’ failure to respond to the invocation notice.
It accordingly appointed Mr. Shayak Mitra, Advocate, as sole arbitrator to adjudicate the dispute, subject to compliance with the disclosure requirements under Section 12 of the Act.
Conclusion
The High Court disposed of the application by appointing a sole arbitrator. It left all issues raised by the petitioner and those available to the respondents to be decided in the arbitral proceedings. The petition was allowed, and the appointment was made under judicial supervision.
Implications
This judgment reinforces key principles of arbitration law:
- Contractual rights and obligations, including arbitration clauses, survive corporate mergers.
- The lender’s discretion over seat of arbitration is enforceable when contractually provided.
- Courts exercising Section 11 jurisdiction must avoid delving into merits or technical objections, leaving such matters to the arbitrator.
It also highlights the importance of party participation—non-appearance despite repeated notices will not stall appointment proceedings.
FAQs
Q1. Can the arbitration clause survive after merger of the original lender?
Yes. When a merger order vests all rights, liabilities, and contracts in the successor entity, the arbitration clause continues to bind the parties.
Q2. Can objections such as privity of contract and limitation be raised before the High Court under Section 11?
No. These issues are to be addressed by the arbitrator under Section 16 of the Arbitration Act.
Q3. Is the lender allowed to choose the place of arbitration?
Yes, if the contract explicitly provides the lender discretion to select the seat of arbitration, the same is enforceable.
