The High Court of Himachal Pradesh has refused to interfere with concurrent findings of lower courts in a dispute involving Kotak Mahindra Bank and a vehicle loan borrower, holding that a civil suit seeking damages for mental harassment cannot be forced into arbitration after the loan contract has already ended.
The ruling came in a petition filed by Kotak Mahindra Bank challenging orders that declined its request to refer the matter to arbitration.
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Background of the Case
The dispute arose from a vehicle loan taken by Jaimal Singh in 2009. According to court records, the borrower fully repaid the loan with interest, followed by another loan against the same vehicle in 2011, which was also cleared by October 2013.
Trouble began years later when Singh decided to sell his vehicle and repeatedly approached the bank for a No Objection Certificate (NOC). Despite full repayment, the NOC was allegedly not issued, forcing him to pursue legal remedies.
After a consumer complaint was withdrawn for lack of jurisdiction, the matter reached the Permanent Lok Adalat at Ludhiana. In September 2017, the Lok Adalat directed the bank to issue the NOC within 15 days. The order attained finality, yet compliance did not follow.
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Left with no option, Singh filed a civil suit seeking ₹2 lakh as damages for mental pain, agony, and harassment caused by the prolonged non-issuance of the NOC.
In response, Kotak Mahindra Bank filed an application under the Arbitration and Conciliation Act, arguing that the original loan agreement contained an arbitration clause. On that basis, the bank sought to shift the dispute away from the civil court and into arbitration.
However, the trial court rejected the plea in December 2022, holding that the suit was not about loan repayment or contractual obligations, but about damages caused by the bank’s conduct after the loan had already been cleared.
An appellate court upheld this view in August 2025, prompting the bank to approach the High Court.
Court’s Observations
Justice Ajay Mohan Goel, after hearing the bank’s counsel, found no reason to disturb the findings of the courts below.
The Court observed that the loan agreement stood exhausted once the borrower repaid the entire amount with interest. The cause of action in the civil suit, the judge noted, was independent of the loan contract.
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“The suit filed for damages obviously has nothing to do with the contract initially entered into between the parties, because the same stood exhausted once the loan amount was repaid,” the bench observed.
The Court further noted that even otherwise, the arbitration clause relied upon by the bank suffered from legal infirmities. The clause allowed the bank to unilaterally appoint a sole arbitrator, a condition that runs contrary to Section 12(5) of the Arbitration and Conciliation Act after its 2016 amendment.
On this ground as well, the Court held that the arbitration clause could not rescue the petitioners.
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Final Decision
Concluding that the civil suit for damages was entirely distinct from the loan agreement and its performance, the High Court dismissed the petition.
The Court upheld both the trial court’s order dated December 23, 2022, and the appellate court’s judgment dated August 30, 2025, refusing to refer the dispute to arbitration. All pending applications were also disposed of.
Case Title: Kotak Mahindra Bank Ltd. & Anr. vs Jaimal Singh
Case No.: CMPMO No. 689 of 2025
Case Type: Civil Miscellaneous Petition
Decision Date: 28 November 2025
