M/S PAISALO DIGITAL LIMITED (FORMERLY KNOWN AS S. E. INVESTMENTS LIMITED) v. M/S SUN CORP & Ors.

Judgment

#1. The present Petition, filed under Section 11(6) of Arbitration and Conciliation Act, 19961, seeks appointment of a Sole Arbitrator for the purpose of resolution of disputes that are stated

to have arisen inter se the parties arising out of the Clause 20 as set out in Hypothecation/Loan Agreement dated 02.03.2015. The said clause reads as follows: if not the parties, “20. Any conflict, difference, controversies, or disputes arising between resolved mutually, shall be submitted/referred to the arbitration of the Sole Arbitrator. The notices like Demand Notice, Loan Recall - cum - Demand Notice and/or telephonic conversations/ mails shall be deemed to be sufficient proof for opportunity given to the Borrower and/ or Guarantor(s) for resolving the issues and efforts of Amicable 1 Act Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:28.02.2026 14:24:00 ARB.P. 1022/2025 Settlement made by the Company. The Borrower and Guarantor (s) hereby agree and give their free consent to the Company i.e. SEIL to appoint I nominate any person/ professional as Sole Arbitrator without any prior consent or reference to them. Such rights of appointing an arbitrator are not questionable by the Borrower and /or the Guarantor (s). The notice for Appointment of Arbitrator and the Statement of Claims can be forwarded by the Company i.e. SEIL on the same day to the Arbitrator and the Borrower as well as the Guarantor(s) so as to facilitate early disposal of Arbitration proceedings. The parties to this agreement agree for the following procedure regarding Arbitration Proceedings:- a) The Statement of Claims will be forwarded by the Company i.e. SE IL along with all documents relied upon by the Company i.e. SEIL. b) The Borrower and Guarantor (s) shall file their reply along with all the documents relied upon within 15 days of receiving of Statement of Claim or such other period as may specified by the Arbitrator. c) The Company i.e. SEIL shall file rejoinder/ replication, if any, within 7 days or such other period as may be specified by the Arbitrator along with further documents. if required. d) Sole Arbitrator will frame issues i.e. points of controversies between the parties. e) Thereafter the Parties will file their Affidavit in Evidence in 7 Days along with further documents, if any. f)Thereafter submissions/arguments in 10 days. parties will their written g) If any party files any Application then the above proceedings will be followed without prejudice to their rights of that Application. h) Hearing will be held on weekly basis or as the Sole Arbitrator think fit and proper. i) The Arbitration Case would be decided on documentary evidence and Affidavits of parties and no verbal submissions shall be taken on record. j) The Sole Arbitrator may decide the other procedural aspects and may change the above schedule if he/she thinks proper. Any notice/ document pursuant hereto shall be deemed to be duly served if sent by Registered Post/ Speed Post at addresses as mentioned in this Agreement or to any changed address if such change has been notified by either party hereto and such notice Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:28.02.2026 14:24:00 ARB.P. 1022/2025 shall be deemed to take effect on third working day following the date of posting thereof. The parties have agreed that documents and correspondence may be served by fax or email and it shall be considered sufficient proof of delivery of documents. The Parties have also agreed that in case of multiple loan transactions in which all or any of the Borrower and Guarantor(s) are same or belong to same group or family then the Company i.e. SEIL at its sole discretion, may initiate single Arbitration Proceedings for multiple loan transactions and multiple or single statement of Claims may be filed by the Company i.e. SEIL. The Arbitration shall be conducted in accordance with the provisions of Arbitration and Conciliation Act, 1996, Rules thereunder and any amendments thereto and the language of the Arbitration shall be English. The decision/ award of the Arbitrator shall be final/conclusive and binding on the parties. The parties have agreed that no reasons for the Award shall be stated by the Sole Arbitrator. The venue of Arbitration shall be at Delhi.”

#2. Learned counsel for the Petitioner submits that the Notice under Section 21 of the Act was sent on 06.05.2025. 3. Learned counsel appearing on behalf of the Respondents submits that there has been no valid invocation of the arbitration clause in accordance with Section 21 read with Section 11(4) of the Act. She further contends that the alleged earliar notice dated

09.09.2017 was issued only after the learned Arbitrator had entered upon the reference and, in any event, the receipt thereof is specifically denied by the Respondents. 4. Learned counsel further contends the order dated

01.04.2025 does not confer any blanket permission upon the Petitioner to institute the present petition. It is submitted that since the cause of action had arisen as early as 25.02.2017, the notice dated 06.05.2025 issued under Section 21 of the Act, invoking arbitration, is ex facie barred by limitation. Consequently, it is urged that the present petition is liable to be dismissed as not maintainable. 5. This Court has perused the various documents, as well as the Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:28.02.2026 14:24:00 ARB.P. 1022/2025 Orders passed by this Court. Particular attention is drawn to the decision dated 04.04.2024, in FAO (COMM) 33/2024, passed by the learned Division Bench of this Court. The relevant paragraphs are extracted hereinbelow: “14. At this stage, the learned counsel for appellant submits that since the impugned award has also been set aside on the ground that the learned Sole Arbitrator was unilaterally appointed, the restoration of the respondent‟s petition would be a useless formality. He states that the appellant would take steps for appointment of the Arbitral Tribunal in accordance with law. 15. It is also relevant to note that during the course of the arguments, the learned counsel for the appellant made a suggestion that a sole arbitrator be appointed by the consent of both the parties. However, the learned counsel for the respondents states, on instructions, that the respondents are not agreeable to do so in these proceedings and the appellant may file an appropriate application under Section 11 of the A&C Act. She also states that in the meanwhile, the respondents would attempt to resolve the disputes with the appellant, amicably. 16. In view of the above, we dispose of the present appeal by leaving it open for the appellant to take appropriate steps for appointment of an arbitrator in accordance with law.”

#6. Subsequent to the passing of the aforesaid decision, the Petitioner filed a Petition, being ARB.P 1862/2024, under Section 11(6) of the Act, without issuing a notice under Section 21 of the Act. The said petition came to be disposed of by a learned Co-Ordinate Bench of this Court by order dated 01.04.2025, which reads as follows: “1. This petition has been preferred on behalf of the Petitioner under Section 11(6) of the Arbitration and Conciliation Act, 1996 („1996 Act‟). 2. As per the averments in the petition, this is a second round of litigation between the parties. In the first round of litigation, Petitioner had invoked the arbitration clause pertaining to loan account No. LD3764. As per the Petitioner, Respondent No. 1 had approached the Petitioner Company for availing loan and after executing the requisite documents, loan of Rs.2,50,00,000/- was extended to Respondent No. 1 vide hypothecation/loan Agreement dated 02.03.2015 and Respondents No. 2 to 4 stood as guarantors. Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:28.02.2026 14:24:00 ARB.P. 1022/2025 However when Respondent No. 1 failed to pay the outstanding dues, Petitioner invoked the arbitration agreement and the arbitral proceedings commenced. Arbitral award dated 10.07.2019 was challenged by the Respondents in OMP (COMM) No. 124/2019 before the learned Trial Court and the petition was allowed vide order dated 08.01.2024 on ground of unilateral appointment of the Arbitrator. In an appeal filed by the Petitioner being FAO (COMM) 33/2024, Petitioner took an objection to the jurisdiction of the Trial Court to entertain the objections under Section 34 of the 1996 Act. Division Bench vide order dated 04.04.2024 agreed with the contention of the Petitioner. Since the Petitioner also pointed out that the award had been set aside on ground of unilateral appointment of arbitrator, the Court granted permission to the Petitioner to take steps for appointment of an Arbitral Tribunal in accordance with law. Pursuant to the liberty granted, Petitioner has filed the present petition. 3. From the chronology of dates and events narrated in the petition, it is clear that after the order of the Division Bench, Petitioner has not issued a notice to the Respondents invoking arbitration under Section 21 of the 1996 Act. Division Bench had granted liberty to take steps for appointment of the Arbitral Tribunal in accordance with law, which the Petitioner construes to be a liberty to file the present petition without issuing a notice of invocation, which is impermissible in light of the provisions of Section 11 of the 1996 Act. In light of this, this petition is disposed of granting liberty to the Petitioner to invoke the arbitration clause in accordance with Section 21 of the 1996 Act read with Section 11(4) and thereafter approach the Court for appointment of the Arbitrator in case of failure of the Respondents to so appoint.”

#7. A reading of paragraph 3 of the aforesaid order makes it evident that this Court had clarified that the judgment of the learned Division Bench did not permit the Petitioner to institute a petition under Section 11 of the Act, without first issuing a notice invoking arbitration under Section 21 of the Act. The order clearly contemplates that, upon the Petitioner taking the requisite steps for invocation of arbitration, it would be open to the Petitioner to take further steps for seeking the appointment of an Arbitrator in accordance with law. 8. The issue relating to whether there was a valid invocation in the first instance or not is clearly not something which was raised in either Signature Not Verified Digitally Signed By:HARVINDER KAUR BHATIA Signing Date:28.02.2026 14:24:00 ARB.P. 1022/2025 of the proceedings earlier. This is a fresh objection which has been raised in the present proceedings. Prima facie, it appears that the objection is merely an attempt to avoid adjudication of the disputes between the parties. 9. As a matter of fact, this aspect does not even appear to have been raised before the learned Arbitral Tribunal. 10. Furthermore, this Court is of the opinion that, in proceedings under Section 11 of the Act, the scope of examination being extremely limited, the Court is only required to appoint an Arbitrator for the purpose of adjudication of the disputes between the parties. 11. It is apposite to note that the legal position governing the scope and standard of judicial scrutiny under Section 11(6) of the Act is no longer res integra. A three-Judge Bench of the Hon‟ble Supreme Court in SBI General Insurance Co. Ltd. v. Krish Spinning2, after taking into consideration the authoritative pronouncement of the seven-Judge Bench in Interplay Between Arbitration Agreements under Arbitration Act, 1996 & Stamp Act, 1899, In re3, comprehensively delineated the contours of judicial intervention at the stage of Section 11of the Act. The excerpt of Krish Spg (supra) reads as under:- “(c) Judicial interference under the 1996 Act 110. The parties have been conferred with the power to decide and agree on the procedure to be adopted for appointing arbitrators. In cases where the agreed upon procedure fails, the courts have been vested with the power to appoint arbitrators upon the request of a party, to resolve the deadlock between the parties in appointing the arbitrators. 111. Section 11 of the 1996 Act is provided to give effect to the mutual intention of the parties to settle their disputes by arbitration in situations where the parties fail to appoint an arbitrator(s). The