Arbitration – When Guarantee Deeds Echo Loan Agreement

 

The appellant sanctioned the loan to the principal borrower no.2 with principal borrower no.1 as the authorised signatory. 

 The High Court appointed the Sole Arbitrator vide Order dated 15.9.2023.  The respondents did not raise objection to the existence of arbitration agreement.

 However, the respondents filed application for discharge from the arbitral proceedings.

 The arbitrator allowed the application vide order dated 20.4.2024 and held that there is no valid arbitration agreement between the appellant and the respondents.

 Clause 32 of the Loan Agreement provided for arbitration clause.

 The respondents did not sign the said loan agreement.  However, on the same day, the respondents executed separate deed of guarantors.   

 The deeds of guarantee incorporate and make reference to clauses 2, 3 and 4 the Loan Agreement. 

 Clause 4 provided that the Guarantor confirms to have read and understood the terms and conditions governing the LOAN and agrees to be bound by the same.   The Guarantor acknowledges and accepts that this Guarantee shall form an integral part of the Agreement.

 These clauses, read together, establish that the Guarantee Deeds and the Loan Agreement form integral part of a single composite transaction

 In that context, it was HELD that by virtue of section 7(5) of the AA, the arbitration clause in the Loan Agreement stands incorporated in the Deeds of Guarantee.   The Loan Agreement and the Deeds of Guarantee were executed as part of one composite single transaction.