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Bombay High Court

Naresh J. Doshi And 3 Ors vs Reserve Bank Of India And 2 Ors on 29 November, 2021

Bench: G.S. Patel, Madhav J. Jamdar

                                                                      22-OSWP-1875-2021.DOC




                   Shephali



                        IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                               ORDINARY ORIGINAL CIVIL JURISDICTION
                                      WRIT PETITION NO. 1875 OF 2021


                   Naresh J Doshi & Ors                                      ...Petitioners
                         Versus
                   Reserve Bank of India & Ors                             ...Respondents


                   Mr Ranjeev Carvalho, with Pankaj Uttaradhi & Sanjana Salvi, i/b
                        Sabeena Mahadik, for the Petitioner.
                   Ms Disha Shetty, holding for Kaustubh Gupte, for Respondent No. 2.


                                            CORAM         G.S. Patel &
                                                          Madhav J. Jamdar, JJ.

                                            DATED:        29th November 2021
                   PC:-


                   1.         Rule.
SHEPHALI
SANJAY
MORMARE

Digitally signed

2. The Petition raises a very serious question about the manner by SHEPHALI SANJAY MORMARE in which the 2nd Respondent, IDFC First Bank Limited, a Date: 2021.11.30 14:44:43 +0530 scheduled bank has, contrary to several squarely applicable decisions of the Supreme Court, proceeded in an arbitration for recovery of its dues. Shorty stated, it has purported to unilaterally appoint an arbitrator, the 3rd Respondent. This is directly contrary to the present state of the law as summarised in Lite Bite Foods Pvt Ltd v AAI,1 following the decisions in Perkins Eastman Architect DPC 1 2019 SCC OnLine Bom 5163.

29th November 2021 22-OSWP-1875-2021.DOC & Anr vs HSSC (India) Ltd;2 Voestalpine Schienen GmbH v Delhi Metro Rail Corporation Ltd;3 and TRF Limited v Energo Engineering Products Ltd.4

3. It is now well settled that in current state of Arbitration Law there are only two methods of appointing or constituting an Arbitral Tribunal. The first is by consent of parties. The second is under an order of a Court under Section 11 of the Arbitration and Conciliation Act, 1996. There is no third avenue. Unilateral appointments are specifically barred and certainly in this manner where the Arbitrator is named by one side without any consent of the other.

4. The second issue is that the entire invocation is contrary to the decision of a three-Judge Bench of the Supreme Court in Vidya Drolia and Anr v Durga Trading Corporation. 5 In paragraphs 55 to 58 and 78 the Supreme Court after an elaborate review of the case law held that disputes that are to be adjudicated by the Debts Recovery Tribunal under the Debts Recovery Tribunals Act, and this would include claims under the RDDBI Act and the SARFAESI Act, are non-arbitrable. This is the express finding in paragraph 78. Paragraphs 55 to 58 deal with the doctrine of election to select arbitration as an alternative dispute resolution mechanism. In paragraph 58, the Supreme Court held that non-arbitrability may arise in cases where there is an implicit prohibition in the statute 2 2019 (9) SCC OnLine SC 1517.

3 (2019) 4 SCC 665.

4 (2017) 8 SCC 377.

5 (2021) 2 SCC 1.

29th November 2021 22-OSWP-1875-2021.DOC conferring and creating special rights to be adjudicated by Courts/public fora, which rights, including enforcement orders/provisions cannot be enforced and applied in case of arbitration. It went on to hold that the claims of banks and financial institutions covered under DRT Act cannot be said to be arbitrable. If they were held to be arbitrable, this would deny these banks and deprive them of specific rights including modes of recovery specified in the DRT Act. Therefore, the Supreme Court said, claims covered by the DRT Act are non-arbitrable. There is a prohibition against waiver of jurisdiction of the DRT by necessary implication. There is no possible ambiguity about this finding. The next sentence in paragraph 58 is even more emphatic. It says "the legislation has overwritten the contractual right to arbitration".

5. We note this because in our view there is a prima facie no possibility of whatsoever of the 3rd Respondent continuing with the arbitration. There is no room for the 2nd Respondent to say that unless there is a stay granted in this Writ Petition the arbitration will continue. That Arbitrator is presently acting wholly without jurisdiction. His appointment is prima facie not good in law.

6. For all these reasons, we grant stay of arbitration in terms of prayer clause (d) at pages 39 and 40 which reads as follows:

"(d) that pending the admission/hearing and final disposal of the present Petition, this Hon'ble Court be pleased to pass a temporary order and injunction restraining Respondent Nos. 2 and 3 by themselves, their officers, servants, agents and/or assigns from in any manner taking any steps whatsoever in furtherance of (i) letters dated 16th July 2021 under which Respondent No.3 was appointed as Page 3 of 4 29th November 2021 22-OSWP-1875-2021.DOC the Sole Arbitrator by Respondent No.2 (Exhibits 'N' and 'S' hereto) and (ii) letter dated 27th July 2021 addressed by Respondent No.3 (Exhibit 'V' hereto);"

7. We say nothing for the present as to any steps that the 2nd Respondent may have taken under the RDDBI Act, SARFAESI ACT or the DRT Act.

8. Rider: Given that the issue is one purely of law and of the Judgments of the Supreme Court, we do not think an Affidavit in Reply is necessary.

9. We will list the Writ Petition for hearing and final disposal on 15th December 2021, high on board.

10. All concerned will act on production of a digitally signed copy of this order.

(Madhav J. Jamdar, J)                                   (G. S. Patel, J)




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