Delhi High Court invalidates arbitration clause on the ground that it cannot permit only one party to arbitrate.

Brief Facts

Shri Chand Construction and Apartments Private Limited (“Plaintiff”), the debtor, filed a civil suit against Tata Capital Housing Finance Limited (“Defendant”), the creditor, for loss caused on account of failure to return the title deeds of an immovable property deposited with the Defendant as security.

On account of the delay in filing of the written statement / application under Section 8 of the Arbitration and Conciliation Act, 1996 (“Act”), the Defendant’s right to file the written statement was closed by the High Court of Delhi (“Court”) by its order dated 21 August 2019. The Defendant filed an appeal against this order to the Division Bench wherein the Defendant was permitted to file its written statement. In the meanwhile, the Defendant also filed an application under Section 8 of the Act (“Application”) requesting the Court to refer the parties to arbitration. The arbitration clause in the parties’ agreement provided that if by virtue of a government notification/amendment/ change in law, the Defendant comes under the purview of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (“SARFAESI Act”) or the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (“DRT Act”), the arbitration clause shall cease to have effect at the option of the Defendant. It was an admitted position that the Defendant was covered by the provisions of the SARFAESI Act.

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