Case Summary: Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. & Ors. (2011) 5 SCC 532

• Court: Supreme Court of India 
• Bench: R V Raveendran , J.M. Panchal 
• Date of Judgement: April 15, 2011 
• Statute Involved: Arbitration and Conciliation Act, 1996 

Brief Facts: 

Capstone Investment Co. (P) Ltd. and Real Value Appliances (P) Ltd. (“RVAppliances”) each owned a flat in Mumbai. Both entities obtained loans fromSBI Home Finance Ltd. (“SBI”) on December 3, 1994, providing the respective flats as collateral. On April 5, 1996, the owners entered into separate leave-and-licence agreements, permitting the appellant to occupy the flats from 1996, until 1999. SBI signed these agreements as a confirming party. 

Additionally, a tripartite deposit agreement was executed. Under this arrangement, theappellant deposited ₹6.5 crore (₹3.25 crore per flat) with Capstone and RVAppliances. Notably, ₹5.5 crore of this amount was paid directly to SBI to dischargeCapstone’s loan, leaving RV Appliances’ loan unpaid. Capstone assumed the role of guarantor for RV Appliances. The deposit agreement’s Clause 16 established an arbitration clause, covering disputes regarding the creation or enforcement of the charge, the application of sale proceeds, and the appellant’s right to retain possessionuntil the deposit’s refund. 

As RV Appliances’ liabilities remained unsettled, SBI filed Mortgage Suit No. 6397/1999 in the Bombay High Court on October 28, 1999, SBI sought enforcement of the mortgage on the flat and the eviction of the appellant. Interim orders issuedonNovember 25, 1999, permitted the appellant to remain in possession. 

On December 15, 1999, the appellant filed an affidavit opposing interimrelief. Later, in 2001, the appellant invoked Section 8 of the Arbitration and Conciliation Act, 1996,

seeking to refer the dispute to arbitration and requesting dismissal of the suit. The Single Judge rejected this application in March 2002. The appellant then filed a special leave appeal challenging the order, the Supreme Court intervened on August 28, 2002, issuing a stay on all further proceedings in the suit. 

Issues: 

1. Whether the subject matter of the lawsuit fell under the scope of the arbitration agreement? 
2. Whether the appellant had waived its right to arbitration by filing a counter- affidavit? 
3. Whether the application for arbitration was liable to be rejected due to a significant delay of 20 months? 
4. Whether a suit for the enforcement of a mortgage by sale could be considered “arbitrable” in the first place? 

Arguments: 

Appellant’s Arguments: 

Booz Allen & Hamilton Inc., serving as the appellant, argued that the dispute in question—including the enforcement of the mortgage— should be referred to arbitration. Their reasoning was based on the arbitration clause embedded within the

multi-party agreements. Essentially, they asserted that since all parties had expresslyagreed to resolve disputes via arbitration, the court was obliged, under Section 8 of the Arbitration and Conciliation Act, 1996, to refer the matter to an arbitrator. In their view, any dispute arising from a contractual relationship, even those implicating a mortgage, was subject to the agreed-upon mechanism of private arbitration. 

Respondent’s Arguments: 

SBI Home Finance Ltd. and the other respondents contended that the dispute was not arbitrable. They argued that a suit seeking enforcement of a mortgage by sale involved a “right in rem”—a right exercisable against the world at large—rather thana “right in personam,” which is enforceable only against a specific individual. According to the respondents, disputes concerning rights in rem, such as those involving mortgages, fall under the exclusive purview of public courts and tribunals, as these matters cannot be resolved privately and require a judicial pronouncement with effect beyond the contracting parties. 

Judgement: 

1. The Court determined that the issues at hand—namely, the enforcement of a mortgage and the appellant’s right to possession—fell squarely within the scope of thearbitration clause (Clause 16). 
2. The judges clarified that submitting a counter-affidavit in response to a plea for interim relief does not amount to making a “first statement on the substance of the dispute.” Such action is procedural, aimed at mitigating an interim order, and does not, by itself, suggest acceptance to the court’s jurisdiction over the substantive matter. 
3. The Court held that delay in filing an application under Section 8 does not, by default, constitute a waiver of the right to arbitration. Especially when the defendant is engaged in ancillary proceedings—such as contesting an interim injunction—suchdelays may be justified and do not automatically forfeit arbitration rights. 
4. Ultimately, the Court concluded that a suit for the enforcement of a mortgage bysale is a distinct category of action that, by law, must be tried before a court of lawand cannot be submitted to a private arbitral tribunal. In effect, the dispute was not “arbitrable. The Supreme Court ultimately upheld the respondents’ perspective, holding that disputes concerning the enforcement of a mortgage by sale are not arbitrable. This decision established the “rights in rem” versus “rights in personam” distinction as a foundational principle in Indian arbitration law. 

Ratio Decidendi: 

The central legal principle established in this case is that enforcing a mortgage through a sale constitutes a distinct legal proceeding that must be addressed by a court, rather than through arbitration. Although the arbitration agreement in question was sufficiently broad to encompass the dispute, the Supreme Court determined that the underlying nature of the issue rendered it non-arbitrable. 

The Court’s reasoning was based on the fact that a mortgage enforcement action qualifies as an “action in rem”, a proceeding against property itself, with potential implications for the rights of the broader public. Because such actions are not merelyprivate disputes between parties, they cannot be resolved by an arbitral tribunal. Consequently, even where parties have agreed to submit their disputes to arbitration, the appropriate forum for this particular type of action remains the judiciary. 

On this basis, the Court upheld the dismissal of the application under Section 8 of theArbitration and Conciliation Act, reaffirming that certain categories of disputes—especially those affecting public rights or interests in property—are inherently non- arbitrable and fall within the exclusive domain of the courts. 

Conclusion: 

In Booz-Allen & Hamilton Inc. vs. SBI Home Finance Ltd. & Ors., the Supreme Court delivered a pivotal judgment clarifying the boundaries of arbitrability withintheIndian legal landscape. Justice Raveendran, authoring the judgment, drewa sharpdistinction between disputes in personam—those solely between the parties—anddisputes in rem—which implicate the rights of the public at large. He emphasized that  matters relating to property rights, insolvency, guardianship, and criminal offenses inherently require adjudication in a public forum, rather than through private arbitration. The true significance of this case lies in its authoritative articulation of the doctrine of arbitrability: certain classes of disputes, by virtue of their public character, remain outside the scope of private arbitration, regardless of any contractual agreement to the contrary. This judgment thus reinforces the principle that arbitration, while valuable, is not a universal mechanism for dispute resolution.