The Bombay High Court has clarified that when a loan agreement designates multiple cities as potential venues for arbitration and grants one party the unilateral right to choose among them, the selected city becomes the exclusive seat of arbitration. This decision reinforces party autonomy under the Arbitration and Conciliation Act, 1996, and resolves long-standing ambiguity regarding the distinction between venue and seat.
Background & Facts
The Dispute
The dispute arose from a loan agreement dated 27 November 2019, under which Tata Capital Housing Finance Limited extended a facility of Rs. 2.24 crore to Inderjeet Sahni and co-borrowers. The loan was secured by a charge on immovable property located in Raipur, Chhattisgarh. The borrowers defaulted, leading to classification of the account as a Non-Performing Asset (NPA). The lender issued notices under Section 13(2) of the SARFAESI Act and obtained an order for physical possession from the District Magistrate. However, due to the mortgaged property being amalgamated with adjacent lands, the lender could not take actual possession without clear demarcation.
Procedural History
- 27 November 2019: Loan Agreement executed with arbitration clause
- 6 February 2023: SARFAESI Act demand notice issued
- 31 July 2025: District Magistrate granted possession order under Section 14 of SARFAESI Act
- 27 May 2025: Lender issued notice invoking arbitration and demanding repayment of Rs. 3.84 crore
- 35431/2025: Application filed under Section 11 of the Arbitration Act for appointment of arbitrator
- 35458/2025: Petition filed under Section 9 seeking interim measures including demarcation of property and appointment of Court Receiver
- Securitization Application No. 874/2025: Respondents challenged SARFAESI proceedings before DRT Jabalpur
The Parties' Positions
- Petitioner (Lender): Argued that Clause 12 of the Loan Agreement designates Mumbai, Delhi, Kolkata, or Chennai as possible seats, and its selection of Mumbai constitutes an exclusive seat under Section 20(1) of the Arbitration Act.
- Respondents (Borrowers): Contended that the clause only specifies venues, not seats; that the cause of action arose in Raipur; and that the Bombay High Court lacks territorial jurisdiction.
Relief Sought
The Petitioner sought:
- Appointment of a sole arbitrator under Section 11
- Interim injunction restraining sale or encumbrance of mortgaged property
- Appointment of a Court Receiver to demarcate the mortgaged land
- Disclosure of respondents’ assets and restraint on their alienation
The Legal Issue
The central question was whether the selection of Mumbai from a list of four cities in a loan agreement, where the lender has unilateral discretion to choose, constitutes an agreed seat of arbitration under Section 20(1) of the Arbitration and Conciliation Act, 1996, thereby conferring exclusive jurisdiction on the Bombay High Court.
Arguments Presented
For the Appellant/Petitioner
The Petitioner relied on Section 20(1) and the principle of party autonomy to argue that the phrase "arbitration to be held in [Mumbai/Delhi/Kolkata/Chennai]" with the lender’s right to choose one city establishes an exclusive seat. It cited BGS SGS Soma v. NHPC and Arif Azim Co. Ltd. v. Micromax to support that the use of "held" indicates anchoring of proceedings to a place, not merely a venue. It further argued that the notice dated 27 May 2025, while demanding repayment, explicitly stated that disputes would be referred to arbitration, satisfying Section 21. It also emphasized that the lender is not a financial institution notified under the RDDB Act, so Vidya Drolia does not bar arbitration.
For the Respondent/State
The Respondents contended that the clause merely lists convenient venues under Section 20(3), not seats. They relied on Ravi Ranjan Developers v. Aditya Kumar Chatterjee, arguing that without an explicit seat designation, jurisdiction must lie where the cause of action arose - Raipur. They claimed the notice under Section 21 was defective for failing to invite participation in arbitrator appointment. They further argued that initiation of SARFAESI proceedings and DRT litigation estopped the lender from invoking arbitration, citing Vidya Drolia. They also asserted the claim was time-barred, with NPA classification occurring in November 2021.
The Court's Analysis
The Court undertook a meticulous analysis of the arbitration clause in Clause 12: "arbitration to be held in [Mumbai/Delhi/Kolkata/Chennai] as may be decided by the Lender." It contrasted this with the language in Ravi Ranjan Developers, where the clause referred to "sittings of the Arbitral Tribunal shall be at Kolkata" - a term the Supreme Court held denoted a venue, not a seat. Here, the use of "held" was decisive. The Court held that "arbitration to be held" signifies the anchoring of the entire arbitral process to a location, not merely the physical hearings.
"The parties have agreed that the arbitration shall be ‘held’ inter-alia at Mumbai. This is contradistinct from the language employed in arbitration clause in Ravi Ranjan Developers where the clause stipulated that ‘sitting of the said Arbitral Tribunal shall be conducted at Kolkata’... I am therefore of the view that the seat of the arbitration in the present case is ‘Mumbai’.
The Court further rejected the argument that the clause was a mere menu of options. It emphasized that the lender’s unilateral right to choose one city from a pre-agreed list does not negate the finality of the chosen seat. Once Mumbai was selected, it became the exclusive seat under Section 20(1), and thus the Bombay High Court had jurisdiction under Section 11(6).
On the issue of non-arbitrability, the Court distinguished Vidya Drolia, which barred arbitration where the creditor was a financial institution under the RDDB Act. The Petitioner was notified only under the SARFAESI Act, not the RDDB Act. The Court held that SARFAESI proceedings are enforcement mechanisms, not adjudicatory, and thus do not oust arbitration. It affirmed Tata Motors Finance Solutions Ltd. v. Naushad Khan and rejected the applicability of Tata Capital Housing Finance Ltd. v. Shri Chand Construction, as that case involved a specific contractual clause allowing abandonment of arbitration upon SARFAESI invocation - absent here.
Regarding limitation, the Court found a factual dispute over the NPA date (November 2021 vs. January 2023) and declined to decide it, leaving it for the arbitrator to determine as a mixed question of law and fact.
The Verdict
The Petitioner succeeded. The Court held that the selection of Mumbai as the seat of arbitration under Clause 12 of the Loan Agreement conferred exclusive jurisdiction on the Bombay High Court. The notice under Section 21 was sufficient to invoke arbitration, and the SARFAESI proceedings did not bar arbitral adjudication. The Court appointed Ms. Pooja Khandeparkar as sole arbitrator and granted interim relief under Section 9, including injunction and appointment of a Court Receiver to demarcate the mortgaged property.
What This Means For Similar Cases
Seat Is Determined by Language, Not Just Choice
- Practitioners must scrutinize arbitration clauses for the verb used: "held" or "conducted" indicates seat; "sittings" or "meetings" suggest venue.
- A unilateral right to choose from a pre-agreed list of cities does not invalidate the seat designation - the chosen city becomes exclusive.
- Always draft clauses with explicit language: "The seat of arbitration shall be Mumbai" to avoid litigation.
SARFAESI Does Not Preclude Arbitration for Non-RDDB Entities
- Financial institutions notified only under SARFAESI Act (e.g., NBFCs) retain the right to invoke arbitration even after initiating SARFAESI proceedings.
- The bar under Vidya Drolia applies only to institutions covered under the RDDB Act.
- Lenders should maintain clear documentation of their regulatory status to avoid jurisdictional challenges.
Interim Relief Requires Court Intervention for Physical Possession
- Arbitrators cannot appoint receivers with powers under Order XL Rule 1 CPC to demarcate land.
- Where physical possession is impeded by lack of demarcation, Section 9 petitions must be filed in court - not left to the arbitrator.
- Courts will grant interim relief where respondents are actively obstructing enforcement through their own non-compliance.
