The Delhi HC has reiterated that arbitration proceedings and proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act) can go hand in hand.

It held that even prior arbitration proceedings are not a bar to proceedings under the SARFAESI Act as it sets out an expeditious procedural methodology enabling the financial institutions to take possession and sell acquired properties for non-payment of dues, as such powers obviously cannot be exercised through arbitral proceedings.

The petitioner, Hero Fincorp. Ltd. advanced loan facilities to Respondent no. 1, Techno Trexim (I) Pvt. Ltd. in terms of the Master Facilities Agreements and Supplementary Agreements executed between the parties. Respondents no. 2 to 7 guaranteed the loans advanced to Respondent no. 1.

The respondents failed to repay the loan amount and the petitioner invoked the arbitration clause and filed a petition under Section 11(5) of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator. Respondent no. 1 submitted that the petitioner had already initiated proceedings before the DRT under the SARFAESI Act and contended that the DRT had the exclusive jurisdiction to decide the issues as under Section 34 of the SARFAESI Act the jurisdiction of the Civil Court is barred in relation to all matters in which DRT has jurisdiction.

The single Judge Bench observed that in M. D. Frozen Foods Exports Pvt. Ltd. v. Hero Fincorp Ltd. the Apex Court had ruled that the provisions of the SARFAESI Act provide a remedy in addition to that provided under the A & C Act.

Therefore, the Delhi High Court appointed an arbitrator and referred Respondents no. 1, 5-7 to arbitration. Respondents no. 2 to 4 could not be referred to arbitration in view of the interim moratorium put in place under the Insolvency & Bankruptcy Code.