Delhi District Court
Sanjiv Bajaj & Anr. vs . Dr. Inder Sanjeev Verma on 17 August, 2023
In the court of Ms. Anu Grover Baliga,
District Judge (Commercial Court-04), South East District,
Saket Courts, New Delhi
ARB. A. (COMM.) 3/2023
Sanjiv Bajaj & Anr. Vs. Dr. Inder Sanjeev Verma
In the matter of:
1. Sanjiv Bajaj
Chairman/Director
Bajaj Finance Limited
Mumbai-Pune Road
Maharashtra - 411 035.
2. Branch Manager
Bajaj Finance Ltd.
Branch K-103 A/K-103B
First Floor, Above 24 Seven Store
Lajpat Nagar-2
New Delhi-110 024. .....Appellants
Versus
Dr. Inder Sanjeev Verma
F-142A, Ground Floor
Mangal Bazar, Laxmi Nagar
Delhi - 110 092
Also At:-
Flat No.49, Ashirwad Apartment
I.P.Extension
Delhi - 110092. ....Respondent
Date of institution : 24.01.2023
Date of reserving order : 08.08.2023
Date of pronouncement of order : 17.08.2023
ORDER
1. This appeal has been filed under Section 37 (1) (a) of Arbitration and Conciliation Act, 1996 against the order dated 22.12.2022 of the learned ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 1 of 14 Senior Civil Judge, South-East, Saket Courts, New Delhi vide which the learned Judge has dismissed the application filed by the Appellants herein for referring the matter to arbitration.
2. As per the Trial Court Record summoned and perused by this Court, the Respondent herein has filed a suit before the learned Senior Civil Judge, South-East, Saket Courts, interalia asserting therein that he had approached the Appellant Company for a loan of Rs.10,00,000/- and that the Appellant Company acceded to his request and sanctioned him an amount of Rs.10,77,000/- which was repayable in 60 monthly EMIs of Rs.25,481/-. In the suit filed before the learned Senior Civil Judge, it has been interalia alleged by the plaintiff (Respondent herein) that though he had made complete payment of the loan to the Appellants, they have malafidely refused to issue No Dues Certificate and have instead malafidely sought to raise a dispute that there is still a substantial amount which remains unpaid by the plaintiff (Respondent herein). The prayer before the learned Senior Civil Judge is, therefore, that a mandatory injunction be issued directing the Appellants herein to issue a No Dues Certificate in favour of the plaintiff and also reimburse the extra payment made by him.
3. The record further reflects that the Appellants herein in reply to the aforementioned suit filed an application under Section 5 and 8 of the Arbitration and Conciliation Act seeking referral of the disputes between the parties to arbitration in terms of Clause 23 (b) of the agreement dated 23.02.2016 executed between the parties.
4. The learned Senior Civil Judge vide the impugned order had dismissed the aforementioned application of the Appellants and the reasons given by the learned Senior Civil Judge are reproduced herein below:-
ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 2 of 14
4. Perusal of the arbitration clause in the loan agreement clearly shows that disputes shall be referred to arbitration of a sole arbitrator and the defendant no. 2 has the sole right to appoint such arbitrator.
5. Bare perusal of the said arbitration clause in which the appointment of sole arbitrator is vested with the defendant no. 2, it is clear that the present arbitration clause is unconscionable, in view of the fact that loan agreement between the parties is standard form agreement with the plaintiff, not having equal bargaining power as that of the defendant no. 2. This is also corroborated by the fact that the original loan agreement has been signed by the Plaintiff on each page, while the representative of defendant no. 2 has only signed on the last page of the agreement and in fact, has not even signed on the Annexures annexed with the said agreement. Non signing of the authorized signatory on each page, unlike the plaintiff, is indicative of the superior bargaining power of defendant no. 2, where the plaintiff was made to do everything as per the desire of defendant no. 2, to ensure that the plaintiff receives the loan amount from defendant no. 2. Thus, it cannot be said that in such a standard form agreement, where both the parties have unequal bargaining power, the plaintiff was specifically made aware of the said arbitration clause or that he had knowingly and willingly consented to such arbitra"In the case of Vidya Drolia & Ors. Vs. Durga Trading Corporation, Civil Appeal No. 2402/2019tions clause in the agreement.
6. In view of the unconscionability of the arbitration clause in standard form contract with the parties occupying unequal bargaining position, the judgment of Hon'ble Supreme Court of India in Central Inland Water Transport Corporation Ltd. & Anr Vs. Brojo Nath Ganguly & Anr. 1986 (3) SCC 156 is applicable.
7. In view of the said judgment, the said arbitration clause cannot be enforced and, therefore, the present application under Section 8 of the Act is dismissed.
5. Feeling aggrieved with the aforementioned order, the instant appeal has been filed. Respondent has filed a detailed reply to the present appeal. On behalf of the Appellants, learned Counsel Sh. Abrar Ahmad has advanced arguments while on behalf of the Respondent, learned Counsels Ms. Gyan Mitra and Sh. Jai Karan Vashisht have advanced arguments.
6. It will be relevant to mention that Ms. Mitra had contended before this Court that this appeal should be summarily dismissed for, in view of the recent law laid down by the Hon'ble Supreme Court, the agreement containing the arbitration clause being relied upon by the Appellants being ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 3 of 14 insufficiently stamped, cannot be made the basis for referring the parties to arbitration. In reply thereto, learned Counsel Sh. Abrar Ahmad has submitted that this issue was never raised by the Respondent before the learned Senior Civil Judge and that the learned Senior Civil Judge has not dismissed the application of the Appellants under Section 5 and 8 of the Arbitration and Conciliation Act on the said ground. He has therefore contended that this Court must not go into the question of insufficient stamping. He prays that in case he is able to satisfy this Court that the impugned order cannot stand, the same be set aside and that an opportunity be granted to the Appellants to satisfy the learned Senior Civil Judge that the agreement in question has been sufficiently stamped. According to learned Counsel Sh. Abrar Ahmad, the Appellants will suffer irreparably if the observations of learned Senior Civil Judge are allowed to stand.
7. Accepting the aforementioned contentions of learned Counsel for the Appellants Sh. Abrar Ahmad, this Court has heard the arguments of both Counsels on the grounds of challenge taken in the present appeal.
8. Learned Counsel for the Appellants Sh. Abrar Ahmad has contended before this Court that the learned Senior Civil Judge was not required to go into the legality or otherwise the agreement entered between the parties and that once the existence of the agreement between the parties containing the arbitration clause was not in dispute, the learned Civil Judge had to obligatory refer the matter to arbitration. Learned Counsel has further submitted that in case the Respondent has any objection to the validity of the contract entered between him and the Appellants, it will have to be raised before the concerned arbitrator and that the learned Senior Civil Judge should not have embarked upon an enquiry in this regard. In this respect, he has relied upon the observations made by the Hon'ble Supreme Court in the ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 4 of 14 case titled and reported as P. Anand Gajapathi Raju & Ors. v. P. V. G. Raju (Dead) & Ors. [2000 (4) SCC 539] . Learned Counsel has pointed out that in the said judgment, the Hon'ble Supreme Court has held:
"the language of Section 8 is peremptory in nature. Therefore, in cases where there is an arbitration clause in the agreement, it is obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the dispute to an arbitrator. Therefore, it is clear that if, as contended by a party in an agreement between the parties before the Civil Court, there is a clause for arbitration, it is mandatory for the Civil Court to refer the dispute to an arbitrator."
9. Learned Counsel has also relied upon the following observations made by the Hon'ble Supreme Court in the case titled and reported as Hindustan Petroleum Corp. Ltd. vs Pinkcity Midway Petroleums (AIR 2003 SC 2881):
"We have come to the conclusion that the Civil Court had no jurisdiction to entertain a suit after an application under Section 8 of the Act is made for arbitration. Therefore, we are of the opinion that the trial court failed to exercise its Jurisdiction vested in it under Section 115 of the C.P.C. when it rejected the application of the Appellants filed under Sections 8 and 5 of the Act. In such a situation, refusal to refer the dispute to arbitration would amount to failure of justice as also causing irreparable injury to the Appellants."
10. Learned Counsel for the Appellants has also submitted that the finding of the learned Senior Civil Judge that since the AR of the Appellants unlike the plaintiff has not signed each and every page of the loan agreement, is indicative of the superior bargaining power of the Appellants and that therefore it is to be held that the plaintiff was never made aware of the arbitration clause or that he had not knowingly or willingly consented to such arbitration clause in the agreement, is completely perverse and is liable to be set aside. According to learned Counsel for the Appellants, the non- signing of every page of the loan agreement does not make the arbitration clause not binding upon the parties. He has pointed out that on a similar ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 5 of 14 contention made before it, the Hon'ble High Court of Andhra Pradesh in the case reported and titled as M/s. Sai Engineering Contractors v. General Manager, South Central Railway And Others, AIR 2010 NOC 21 (AP), held that:
"Even if every page of the contract agreement between the parties is not signed, even then both the parties would be bound by the arbitration clause by reason of the binding covenant in the contract agreement itself forming part of the contract".
11. Learned Counsel for the Appellants has further submitted that merely because the loan agreement is a standard form of contract, the learned Senior Civil Judge could not have concluded that the parties did not have equal bargaining power and the Appellants had a superior bargaining power. In support of this contention, he has relied upon the following dicta laid down by the Hon'ble High Court of Punjab and Haryana in the case titled and reported as Magma Leasing Ltd v Inder Pal Sigh, 2010 (6) RAJ 270 (P&H), held as under:-
"8. After giving my thoughtful consideration, to the contentions, raised by the Counsel for the revision petitioners, in my considered opinion, it is a fit case, in which the order impugned, deserves to be set aside, for the reasons to be recorded hereinafter. It is evident from para no.7 of the order impugned that the trial Court came to the conclusion that, an agreement containing the Arbitration Clause was executed between the parties. Once the execution of the agreement between the parties containing the arbitration clause, was admitted by the trial Court, it was required to refer the matter to the Arbitrator. It was not required to go into the legality or otherwise of the same. The trial court, as is evident from the order impugned, went into the legality or otherwise of the agreement and recorded observations that, at the time of execution of such an agreement, one of the parties being in a greater bargaining position, generally drafts the terms, which suit most, and go against the other party, which is in a weaker bargaining position. These observations, in my opinion, were not warranted while deciding the application, as to whether, the matter was to be referred to the Arbitrator or not."
12. It is also the submission of the learned Counsel for Appellants that the finding of the learned Senior Civil Judge that the entire arbitration clause is unconscionable for it gives the sole authority to appoint an arbitrator to ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 6 of 14 the Appellants, is also incorrect. Learned Counsel for the Appellants has submitted that part of the arbitration clause which makes it mandatory that the disputes arising between the parties will be referred to arbitration, is perfectly valid. He further submits that if at all, the learned Senior Civil Judge should have held only that part of the arbitration clause to be invalid which gave the sole authority to the Appellant Company herein to appoint a sole arbitrator. In support of his contentions, learned Counsel for the Appellants has referred to the judgment of the Hon'ble Supreme Court pronounced in the case "Arbitration Application No.32 of 2019, Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd.". He has pointed out that in the said case the Hon'ble Supreme Court took the view that in an arbitration agreement providing for adjudication by a sole arbitrator, the appointment of the sole arbitrator cannot be made unilaterally by one of the parties, even if the clause so vested such a power in the said party, and that to maintain absolute fairness and impartiality, the competent Court alone could effect the said appointment in exercise of powers under Section 11 of the Arbitration and Conciliation Act, 1996 ('Arbitration Act'). He submits that in view of the said judgment, the Appellants herein had undertaken before the learned Senior Civil Judge that the Appellants will be approaching the Hon'ble Delhi High Court for appointment of an arbitrator under Section 11 of Arbitration and Conciliation Act and that the suit therefore should not be proceeded with. According to learned Counsel for Appellants, the learned Senior Civil Judge did not agree with the said proposition and instead struck down the entire arbitration clause as invalid. It is therefore being submitted that the view taken by the learned Senior Civil Judge is completely erroneous.
13. In rebuttal, learned Counsels for the Respondent Ms. Gyan Mitra and Sh. Jai Karan Vashisht have mainly contended that the learned Senior Civil ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 7 of 14 Judge was wholly justified in refusing to hold the arbitration agreement between the parties as valid. They have submitted that the loan agreement containing the Arbitration clause does not at all meet the mandatory requirement of section 7 of the Arbitration and Conciliation Act in as much as the same has neither been signed by either of the parties on each and every page nor it has not been drafted with the consent of both the parties. According to learned Counsels, the Respondent had never agreed for reference of his disputes with the Appellants to arbitration. In such view, their contention is that the disputes between the parties could not have been referred to arbitration.
14. In addition to the above, learned Counsel Ms. Mitra had also filed on record the judgment of the Hon'ble Delhi High Court dated 19.02.2020 pronounced in the case tilted as SSIPL Lifestyle Private Limited Vs. Vama Apparels (India) Private Limited & Anr. CS (COMM) 735/2018. It is relevant to mention that copy of the aforementioned judgment was filed on record by Ms. Mitra on 06.07.2023 and she had submitted that as per the judicial dicta laid down in the said judgment, the application filed by the Defendants/Appellants herein under Section 8 of the Arbitration and Conciliation Act had to be filed within 120 days of its service. On a query by this Court as to how the said judgment dicta is applicable to the facts of the present case, Ms. Mitra on 06.07.2023 had submitted that she will inspect the Trial Court Record and then make submissions on the same. However, after the said date, Ms. Mitra did not come to advance any arguments on the said issue and learned Counsel Sh. Vashisht appearing on behalf of the Respondent on 08.08.2023, when this appeal was finally heard, merely submitted that this Court must refer to paragraphs 18, 19 and 23 of the aforementioned judgment.
ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 8 of 14
15. This Court has gone through the aforementioned paragraphs and has also perused the Trial Court Record. The dicta laid down in the said paragraphs is to the effect that a Defendant in a suit must file, if it so desires, an application under Section 8 of the Arbitration and Conciliation Act, within 120 days of its service. The Trial Court Record reflects that the Defendants (Appellants herein) had been served with the summons of the suit on 15.09.2021 and the application under Section 5 and 8 of the Arbitration and Conciliation Act was filed by the Defendants on 16.11.2021. Thus clearly it was filed within 120 days of the service of the Defendants (Appellants herein).
16. In view of said Trial Court Record, in the considered opinion of this Court, the judicial dicta filed on record by Ms. Mitra does not come to the aid of the Respondent at all.
17. Coming now to the remaining contentions raised on behalf of both the parties, this Court is of the considered opinion that the order dated 22.12.2022 of the learned Senior Civil Judge, South-East District, is liable to be set aside.
18. It is no longer res integra that in cases where there is an arbitration clause in an agreement between the parties, it is obligatory for a Court to refer the parties to arbitration in terms of their arbitration agreement. The Hon'ble Supreme Court has reiterated the aforementioned proposition in many of its cases and some of them as narrated hereinabove have already been pointed out by the learned Counsel for the Appellants. In one of the very recent judgments, pronounced in the case titled as Vidya Drolia & Ors. Vs. Durga Trading Corporation, Civil Appeal No. 2402/2019 (this judgment is also being relied upon by learned Counsel for the Appellants), ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 9 of 14 the Hon'ble Supreme Court after exhaustively dealing with the provisions of Section 8 and 11 of the Arbitration and Conciliation Act has reiterated that the judicial interference at the stage of referral to arbitration is very limited. In the said judgment, the Hon'ble Supreme Court has laid down the following judgment dicta:-
a. Sections 8 and 11 of the Act have the same ambit with respect to judicial interference.
b. Usually, subject matter arbitrability cannot be decided at the stage of Sections 8 or 11 of the Act, unless it's a clear case of deadwood. c. The Court, under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non-existence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding.
d. The Court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis, as laid down above, i.e., 'when in doubt, do refer'.
e. The scope of the Court to examine the prima facie validity of an arbitration agreement includes only:
a. Whether the arbitration agreement was in writing? or b. Whether the arbitration agreement was contained in exchange of letters, telecommunication etc?
c. Whether the core contractual ingredients qua the arbitration agreement were fulfilled?
d. On rare occasions, whether the subject-matter of dispute is arbitrable?"
19. In view of the aforementioned judicial dicta, it is clear that though no doubt the learned Senior Civil Judge did have the power to prima facie examine the existence of an arbitration agreement, the said examination was to be restricted only to satisfy itself whether the arbitration agreement between the parties was in writing and whether the core contractual ingredients qua the arbitration agreement were fulfilled.
20. Now admittedly the loan agreement containing the Arbitration Clause executed between the parties in the present case is in writing. However according to the learned Senior Civil judge, the same cannot be held to a valid arbitration agreement because the loan agreement is a standard form ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 10 of 14 agreement and this makes the Arbitration clause unconscionable. As narrated in para 4 hereinabove according to learned Senior Civil Judge, the existence of a standard form agreement reflects that the Appellants and the Respondent did not have equal bargaining power and the same is also corroborated by the fact that though the original loan agreement has been signed by the plaintiff (Respondent herein) on each page, the representative of Appellant/Defendant Company has only signed on the last page of the agreement. According to her, this is indicative of the superior bargaining power of the Appellants. She has also held that in such a standard form agreement where both the parties have unequal bargaining power, it cannot be held that the Plaintiff/Respondent herein was specifically made aware of the arbitration clause or that he had knowingly or willingly consented to such arbitration clause in the agreement. Learned Senior Civil Judge has also relied upon the judgment of the Hon'ble Supreme Court pronounced in the case titled and reported as Central Inland Water Transport Corporation Ltd & Anr Vs. Brojo Nath Ganguly & Anr. 1986 (3) SCC 156 to hold that the parties were occupying unequal bargaining position.
21. In the considered opinion of this Court, the entire reasoning of the learned Senior Civil Judge is erroneous and cannot be sustained. The finding of the learned Senior Civil Judge that the arbitration clause in the present case is unconscionable because it is contained in a standard form contract is absolutely without any basis. Her reliance in this respect on the judgment of the Hon'ble Supreme Court in Central Inland's case (supra) is mis-placed. In the said case before the Hon'ble Supreme Court, it was a contract of employment between an authority which was deemed to be State and its employee, that was under consideration. The Hon'ble Supreme Court after referring to the Constitution of India guaranteeing fundamental rights to its citizens, held that standard employment contracts used by the State ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 11 of 14 through its instrumentalities which contain terms which are so unfair and unreasonable that they shock the conscience of the Court and are opposed to public policy, are to be held as void. The Hon'ble Court took into consideration that the contract before it was between a powerful employer i.e. State and a weak employee and that the employee had no option but to sign the same to earn his livelihood. It was in such a context that the standard employment contract was struck down as unconscionable and void. In the very same judgment, the Hon'ble Supreme Court observed that it is not possible to equate a contract of employment with a mercantile transaction and that the principle with respect to unconscionable contract enumerated by it, may not apply where both parties are businessmen and the contract is a commercial transaction. It also observed that each case must be judged on its own facts and circumstances. In view of such judicial dicta, it cannot be said that all standard form contracts were held to be unconscionable by the Hon'ble Supreme Court. In commercial transactions it can be stated that an unconscionable contract would be one that is so gross and unreasonable in the light of the business practices of the time and place that it should not be enforced.
22. Now in the present case, merely because the loan agreement executed between the parties is a standard form agreement and is not signed on each page by the authorised representative of the Appellant Company, does not at all lead to the conclusion that its terms were unreasonable or gross or that the Appellants had a superior bargaining power or that the parties did not possess equal bargaining power. The Appellant Company is a non banking financial company and it is a matter of general knowledge that such companies, at the time of grant of financial facilities, do resort to standard forms of contract, for they are required to enter into such contracts with numerous borrowers. The terms and conditions of grant of such loans, etc ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 12 of 14 are regulated by the RBI and the terms and conditions of such loan agreements are well known in financial circles. The officials of such companies using standard form contracts are themselves thus well versed with the entire contents and it is only a borrower who is to be made aware of all terms of the standard form agreement. In such view, the fact that the authorised representatives of the Appellant Company themselves do not sign each page of the loan agreement but make the borrower sign each page thereof is in tune with trade practices. This practice of the Appellants infact reflects that each borrower is given an opportunity to go through the terms and conditions of the agreement to understand its contents fully and only then sign the agreement.
23. Thus, by no stretch of imagination can it be held that merely because the AR of the Appellant Company has not signed on each page of the agreement, the same indicates superior bargaining power of the Appellants Company. The fact that the Plaintiff/Respondent has signed on each page of the loan agreement is sufficient to hold that he knowingly or willingly consented to arbitration.
24. Further as regards the observation of the learned Senior Civil Judge that the arbitration clause is unconscionable because it gives the Appellants herein the sole authority to appoint an arbitrator, suffice to state that, in view of the judgment of the Hon'ble Supreme Court in Perkin's case (supra) and the Appellants undertaking that they will approach the Hon'ble Delhi High Court for appointment of an arbitrator, she should not have struck the entire arbitration clause as invalid.
25. In view of the discussion herein above this Court is of the considered opinion that present is not a case where the Plaintiff/Respondent herein ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 13 of 14 established a prima facie case before the learned Senior Civil Judge to show that no valid agreement existed between him and the Appellant company or that the core contractual ingredients qua the arbitration agreement were not fulfilled. As such in view of the judicial dicta laid down by the Hon'ble Supreme Court in Vidya Drolia's case (supra), the impugned order dated 22.12.2022 passed by the learned Senior Civil Judge refusing to refer the disputes to arbitration on the grounds given by her, cannot be upheld.
26. This Court therefore hereby allows the present appeal and sets aside the impugned order dated 22.12.2022 of the learned Senior Civil Judge and remands the matter to her with the directions that she must now only examine whether or not the arbitration agreement in question has been sufficiently stamped, after giving opportunity to both parties to advance arguments on the said issue and thereafter pass necessary directions as per law.
27. A copy of this order be sent immediately to the learned Senior Civil Judge alongwith the Trial Court Record. Parties to appear before her now on 25.08.2023 at 2:00 P.M.. This file be consigned to Record Room.
Digitally signed by ANU ANU GROVER
GROVER BALIGA
Date: 2023.08.17
BALIGA 16:21:15 +0530
Announced in the Open Court (Anu Grover Baliga)
th
on 17 August , 2023. District Judge (Commercial Court-04) South-East District/Saket/New Delhi ARB. A. (COMM.) 3/2023 Sanjiv Bajaj Vs. Dr. Inder Sanjeev Verma Page 14 of 14