Arbitration Clause Cannot Be Invoked Once Loan Contract Is Exhausted: Himachal Pradesh High Court
The Himachal Pradesh High Court has held that a civil suit seeking damages for harassment and mental agony on account of non-issuance of a No Objection Certificate could not be linked to the original loan agreement once the loan was fully repaid. The Court remarked that the loan contract had been exhausted upon complete repayment of the loan amount, and therefore, the subsequent claim for...
The Himachal Pradesh High Court has held that a civil suit seeking damages for harassment and mental agony on account of non-issuance of a No Objection Certificate could not be linked to the original loan agreement once the loan was fully repaid.
The Court remarked that the loan contract had been exhausted upon complete repayment of the loan amount, and therefore, the subsequent claim for damages could not be governed by the arbitration clause contained in the loan agreement.
Justice Ajay Mohan Goel remarked that: “The suit filed for damages obviously has nothing to do with the contract initially entered into between the petitioners and the respondent–plaintiff, because the same stood exhausted once the loan amount was repaid by the plaintiff.”
In 2009, the respondent took a vehicle loan of Rs 2,00,000 from the petitioner bank, which was completely repaid in 2011. Later, another loan of ₹2,00,000 was again taken, which was also repaid on time.
Even after repayment of both loans, the Bank did not give the No Objection Certificate, due to which the respondent could not sell the vehicle.
The matter was taken before the Permanent Lok Adalat, which directed the bank to issue the No Objection Certificate within 15 days.
However, the bank did not comply with it, after which the respondent filed a civil suit claiming ₹2,00,000 as damages for mental agony, harassment, and litigation expenses.
In response, the Bank filed an application under Section 8 of the Arbitration and Conciliation Act, relying on the arbitration clause contained in the loan agreement.
The application of the bank was rejected by the Trial Court on the ground that the suit does not relate to any dispute arising out of the loan agreement rather it is a recovery on account of damages.
Case Name: Kotak Mahindra Bank Ltd. & Anr. V/s Jaimal Singh
Case No.: CMPMO No.689 of 2025
Date of Decision: 28.11.2025
For the Petitioners: Mr. Jai Dev Thakur, Advocate.