Section 31 Of The Credit Information Companies (Regulation) Act, 2005 Does Not Bar Constitution Of An Arbitral Tribunal: Madras High Court

The Madras High Court has ruled that the bar contained under Section 31 of the Credit Information Companies (Regulation) Act, 2005 (CIC Act) will not apply to proceedings for constitution of an arbitral tribunal, to resolve the disputes in the manner prescribed under the CIC Act. The Single bench of Justice Senthilkumar Ramamoorthy held that the object and purpose of Section 31 of the CIC Act is to preclude the parties from seeking redressal of grievances in any manner other than that prescribed under the CIC Act. It added that since Section 18 of the CIC Act provides for dispute resolution through arbitration, the provisions of Section 31 would not bar the constitution of an arbitral tribunal. The High Court observed that since proceedings against the petitioner, who provided personal guarantee to a borrower, were initiated before the NCLT, therefore, the interim moratorium under Section 96(1) of the Insolvency and Bankruptcy Code, 2016 (the IBC) was triggered. The Court noted that the petitioner sought to invoke arbitration, raising a dispute pertaining to the information put out by the credit information company, in respect of the alleged default made by it. The bench ruled that the arbitral tribunal cannot adjudicate upon the accuracy of the information displayed by the credit information company, without examining the scope of the personal guarantee and the liability of the petitioner. The petitioner- Kirankumar Moolchand Jain, provided a personal guarantee in respect of the loan offered by the second respondent- Cosmos Co-operative Bank Ltd, to an entity. The petitioner alleged that the said loan was not actually disbursed to the borrower and that the first respondent- TransUnion CIBIL Ltd., placed incorrect information on its website regarding the alleged default by the petitioner in respect of the loan granted to the borrower. Thereafter, the petitioner filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Madras High Court, seeking constitution of an arbitral tribunal in terms of Section 18 of the Credit Information Companies (Regulation) Act, 2005 (CIC Act). The petitioner sought adjudication of the dispute pertaining to the information put out by the first and second respondents, in respect of the alleged default by the borrower and the petitioner. Disputing the maintainability of the petition, the second respondent- Cosmos Co-operative Bank, submitted before the High Court that Section 31 of the CIC Act bars the jurisdiction of the Court in relation to matters referred to in Section 18 of the CIC Act. Section 18 of the CIC Act provides that, disputes between the credit information companies, credit institutions, borrowers and clients on matters relating to business of credit information, for which no remedy is provided under the CIC Act, shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996 (A&C Act). As per Section 31 of the CIC Act, except the Supreme Court and the High Court exercising jurisdiction under Articles 32, 226 and 227 of the Constitution, no court or authority shall have any jurisdiction, power or authority in relation to the matters specified therein, including the matters referred to in Section 18. The Court held that the object and purpose of Section 31 of the CIC Act is to preclude the parties from seeking redressal of grievances in any manner other than that prescribed under the CIC Act. It added that since Section 18 of the CIC Act provides for dispute resolution through arbitration, the provisions of Section 31 would not bar the constitution of an arbitral tribunal to resolve the disputes in the manner prescribed under the CIC Act. Rejecting the objection made by the respondent towards the maintainability of the petition, on the ground that there was no arbitration agreement between the parties, the bench ruled that Section 18 of the CIC Act imports an arbitration agreement for purposes of the A&C Act, by way of a legal fiction. The respondents argued before the Court that arbitration under Section 18 of the CIC Act is applicable only if the dispute between the parties relates to the business of credit information. The respondent added that the dispute between the parties pertaining to the information put out by the respondents, did not relate to the business of credit information. Thus, it contended that the said dispute could not be resolved through arbitration. Noting that the 1st respondent is a credit information company and the 2nd respondent is a credit institution, the Court noted that the expression 'client', as defined in Section 2(c) of the CIC Act, includes a guarantor or a person who proposes to give a guarantee for a borrower of a credit institution. Thus, the bench ruled that the petitioner qualified as a client. Referring to Section 14 of the CIC Act,...

Section 31 Of The Credit Information Companies (Regulation) Act, 2005 Does Not Bar Constitution Of An Arbitral Tribunal: Madras High Court

Parina Katyal

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