Bombay High Court reaffirms court’s prerogative to look into Arbitrability of disputes under Section 8 of the Arbitration Act
by Nidhish Mehrotra, Shikha Goenka Ginodia, Gaurav Suryavanshi and Simran Kasat
On October 9, 2025, while deciding a Section 8 application1 under the Arbitration and Conciliation Act, 1996 (“Act”) the Bombay High Court has reiterated the non-arbitrability of rights in rem. The single bench of Mr. Sandeep V. Marne J was hearing the Section 8 filed by four Defendants in a suit instituted by Capri Global Capital Limited (“CGCL”). The matter filed by the lender sought to enforce the mortgage rights created in favour of the lender by builder firm and its’ partners.
The lender CGCL had loaned the developer firm Crores for redevelopment of a project in suburban Mumbai. The developer firm mortgaged units in the project, along with receivables thereunder with CGCL. The lender filed a suit upon the default of the developer inter alia seeking to enforce its’ mortgage rights. CGCL also impleaded the society formed by the homeowners of the mortgaged units as a Defendant.
The developer in its’ Section 8 application sought to have the dispute referred to arbitration, citing the arbitration clause in the Indentures of Mortgage executed between the parties.
The Court while reaffirming the position in Booz Allen,2 held that while under Section 11 of the Act, the court’s inquiry is confined to existence of an arbitration agreement, under Section 8, the court must determine the arbitrability of the subject matter before referring to the dispute. The Court reiterated that mortgage suits involve enforcement of rights in rem, which affect third parties and require centralized adjudication by public fora. The Court also found that enforcement or redemption of mortgages was specifically a right in rem, and thus inherently non-arbitrable.
The four-fold test to determine non-arbitrability as laid down in Vidya Drolia3 was also endorsed wherein the any right against third parties, was held to be non-arbitrable. Further the Court rejected the contention that claims of financial institutions were not “right in rem” and has relied on the interpretation of the M.D. Frozen Foods4 as interpreted in Vidya Drolia (supra) claims by financial institutions were seen as covered by DRT and were thus to be non-arbitrable.
The Court relied on the Apex Court’s observations in Interplay between Arbitration Act and Stamp Act,5 wherein the role of courts in Section 8 application vis a vis a Section 11 application under the Act, were distinguished. A referral court under Section 8 was required to look into the prima facie validity of an arbitration agreement, whereas under Section 11 mere existence of the arbitration agreement would suffice.
The Emaar MFG III6 judgment also emphasized that the legislative amendments to the Act did not override the non-arbitrability principle. Further, the society of the unit holders being a Defendant against whom who would not be party to the arbitration, if so referred, also rendered the matter non-arbitrable.
The Court also rejected the argument that only part of the dispute could be referred to arbitration, citing Sukanya Holdings,7 which prohibits partial reference of a composite suit. Redemption of mortgage is thus once again positively held to be a matter that cannot be resolved by arbitration.
Footnotes
1 Divya Enterprises & Ors. v. Capri Global Capital Limited Interim Application (L) No. 25700 of 2025 in the Comm. Suit (L) No.23360 of 2025
2 Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. (2011) 5 SCC 532.
3 Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1
4 M.D. Frozen Foods Exports Pvt. Ltd. v. Hero Fincorp Ltd. (2017) 16 SCC 741
5 InterplayBetween Arbitration Agreements under Arbitration and Conciliation Act,1996 and Stamp Act, 1899 (2024) SCC 1
6 Emaar MGF Land Ltd. v. Aftab Singh (2019) 12 SCC 751
7 Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya (2003) 5 SCC 531
