Bombay HC Refers Tata Capital's ₹36.10 Crore Loan Dispute With Priyanka Communications To Arbitration

On 8 June, the Bombay High Court held that Section 8 of the Arbitration and Conciliation Act, 1996 must be construed liberally to facilitate arbitral reference and cannot be defeated by procedural technicalities such as insisting on a separate application for referral.

Justice Abhay Ahuja referred Tata Capital Financial Services Ltd.'s Rs.36.10 crore loan recovery dispute with Priyanka Communications (India) Pvt. Ltd. and its guarantors to arbitration under Clause 21 of the Working Capital Demand Loan Agreement dated 2 August 2018. He observed:

“It is indeed true that Section 8 of the Arbitration Act is mandatory but it also cannot be ignored that Section 5 of the said Act clearly brings out the object of the Act viz. that of encouraging resolution of disputes expeditiously and where there is an arbitration agreement, Section 8 has to be construed keeping the legislative intent in mind. In my view, the legislative intent requires a Court to interpret Section 8 widely and not in a restrictive fashion, as would be the case if it were to be held that a separate Interim Application ought to have been filed making the same plea as made before this Court by the learned Senior Counsel on 11th September 2025 and in the written submissions filed in this Court, as the same would take away or rather delay reference of disputes to be adjudicated by the agreed mode of arbitration."

The dispute arose from a Working Capital Demand Loan facility extended by Tata Capital Financial Services Ltd. to Priyanka Communications (India) Pvt. Ltd. pursuant to a sanction letter dated 31 July 2018, enhancing the facility to Rs.30 crore. The parties executed the Working Capital Demand Loan Agreement on 2 August 2018, and the company's directors furnished personal guarantees securing repayment obligations.

Alleging default, Tata Capital issued a demand notice on 17 March 2020 seeking Rs.37.61 crore from the borrowers and guarantors. It thereafter instituted a Commercial Summary Suit seeking recovery of Rs.36.10 crore stated to be outstanding as on 1 September 2020.

Priyanka Communications and its guarantors filed an Interim Application under Order VII Rule 11 CPC seeking rejection of the plaint, contending that the suit disclosed no cause of action, was not maintainable as a summary suit under Order XXXVII CPC, and that Tata Capital could not invoke arbitration after opting for civil proceedings.

Tata Capital opposed the plea, submitting that the plaint disclosed a clear cause of action and further highlighting that the defendants themselves had invoked Section 8 of the Arbitration Act by asserting that the dispute was arbitrable.

The Court held that the plaint disclosed a valid cause of action and relied on a Revival Letter dated 28 May 2018 as well as entries in the company's balance sheet to prima facie support the liability. It further held that the objections raised by the defendants related to matters of defence and could not be grounds for rejection of the plaint under Order VII Rule 11 CPC.

The Bench also noted that Clause 21 of the agreement contained a valid arbitration clause and that the defendants had themselves invoked Section 8 in their leave-to-defend affidavit dated 29 November 2022.

Relying on Sections 5 and 8 of the Arbitration and Conciliation Act, Justice Ahuja held that a purposive interpretation favouring arbitration was required and that insisting on a separate application for referral would only delay adjudication through the agreed mechanism.

Accordingly, the High Court referred the parties to arbitration under Clause 21 of the Working Capital Demand Loan Agreement dated 2 August 2018 and disposed of the proceedings.

Appearances for petitioners (Priyanka Communications (India) Pvt. Ltd. & Ors.): Advocates Somiran Sharma, Rehmat Lokhandwala and Abuzar Khan, instructed by Pan India Legal Services LLP.

Appearances for respondent (Tata Capital Financial Services Ltd.): Senior Advocate Chetan Kapadia, with Advocates Rohan Sawant, Aman Saraf and Aishwarya Mehta, instructed by Manilal Kher Ambalal & Co.