Case Law Details
Union Bank of India Vs Can Fin Homes Ltd (DRT Delhi)
The matter was heard by the Debt Recovery Tribunal (DRT), Delhi through video conferencing or hybrid mode. The application (TSA No. 222/2023) was filed by the applicant bank against a financial institution. During the proceedings, the respondent financial institution argued that the application was not maintainable in view of the judgment delivered by the Supreme Court in Appeal No. 7110/2025 concerning the interpretation of Section 11 of the SARFAESI Act.
The respondent submitted that where a dispute relates to recovery of loans and involves determining which secured creditor has priority over charges, such disputes cannot be adjudicated by the DRT under Section 17 of the SARFAESI Act. Instead, the appropriate remedy is to invoke arbitration under Section 11 of the SARFAESI Act. On this basis, the respondent argued that the present application should be dismissed in accordance with the Supreme Court’s ruling.
The Tribunal heard the submissions of both parties and examined the Supreme Court judgment relied upon by the respondent. The Supreme Court had considered the question of whether disputes between two banks or financial institutions could be adjudicated by the DRT or whether such disputes should be resolved through arbitration under Section 11 of the SARFAESI Act.
In its judgment, the Supreme Court framed four issues for determination, including the scope of Section 11 of the SARFAESI Act, the meaning of disputes relating to securitisation, reconstruction, or non-payment of amounts due including interest, the significance of disputes arising among banks, financial institutions, asset reconstruction companies, or qualified buyers, and whether a written arbitration agreement is required for invoking Section 11. The Court also examined whether Section 11 should be interpreted as mandatory or directory in nature.
After analysing various judgments of High Courts and the Supreme Court, as well as the provisions and intent of the SARFAESI Act, the Supreme Court summarised its conclusions. It held that Section 11 governs the resolution of disputes relating to securitisation, reconstruction, or non-payment of amounts due between banks, financial institutions, asset reconstruction companies, or qualified buyers.
The Supreme Court further clarified that for Section 11 to apply, two conditions must be satisfied. First, the dispute must be between entities such as banks, financial institutions, asset reconstruction companies, or qualified buyers. Second, the dispute must relate to securitisation, reconstruction, or non-payment of any amount due, including interest. When these conditions are satisfied, the DRT will not have jurisdiction, and the dispute must be resolved through arbitration under Section 11 of the SARFAESI Act read with the Arbitration and Conciliation Act, 1996.
The Court also observed that the expression “non-payment of any amount due including interest” has a wide scope and covers various disputes connected with unpaid amounts, including those arising from indirect defaults of borrowers. It further held that Section 11 creates a statutory arbitration mechanism and does not require the existence of an explicit written arbitration agreement between the parties. The provision operates through a legal fiction treating such disputes as subject to arbitration even if no arbitration clause exists.
Additionally, the Supreme Court held that Section 11 is mandatory in nature. The use of the word “shall” indicates that the statutory mechanism cannot be bypassed by parties by seeking other remedies.
After considering the above conclusions, the Tribunal observed that the Supreme Court had clearly held that disputes between financial institutions relating to recovery of dues or priority of charges must be referred to arbitration under Section 11 of the SARFAESI Act, even in the absence of an arbitration clause. In such cases, the DRT does not have jurisdiction to entertain an application under Section 17 of the SARFAESI Act.
Applying the principles laid down by the Supreme Court, the Tribunal concluded that the present application was not maintainable. Consequently, the application (TSA No. 222/2023) was dismissed, and the parties were advised to seek resolution of their dispute through arbitration under Section 11 of the SARFAESI Act. The file was directed to be consigned to the record.
FULL TEXT OF THE ORDER OF DRT DELHI
Matter is taken through Video Conferencing/ Hybrid Mode.
2. This TSA has been filed by the applicant bank against the Can Fin Homes Ltd. The Ld. Counsel of the respondent FI has submitted that the present TSA is not maintainable as per judgement passed by the Honble Supreme Court in Appeal no.7110/2025 in matter of Bank of India Vs. M/s Sri Nangli Rice Mills Private Limited and Ors. It is submitted that where there is a dispute with regard to the recovery of the loans and where it is to be decided which secured creditor has priority of the charges, the SA shall not be maintainable under Section 17 of the SARFAESI Act and the secured creditor has to move under Section 11 of the SARFAESI Act. It is, therefore, submitted that the present SA is liable to be dismissed in terms of the recent judgement passed by the Honble Supreme Court.
3. Heard the Ld. Counsels of both the parties and perused the judgement passed by the Honble Supreme Court. From perusal of the judgment in para no.2 it is clear that the matter was gone in appeal before the Honble Supreme Court on a question whether the dispute inter-alia is between two banks, the DRT has no jurisdiction to adjudicate the same and accordingly the parties may be directed to resolve the dispute through arbitration under Section 11 of the SARFAESI Act. The Honble Supreme Court has considered this aspect in detail and has framed four issues for determination in para no. 42 of the judgement which are as below:-
“42. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the following questions fall for our consideration:
I. What is the scope of Section 11 of the SARFAESI Act? In other words, what is the meaning of the expression “any dispute relating to securitisation or reconstruction or nonpayment of any amount due including interest” occurring in Section 11 of the SARFAESI Act?
II. What is the significance of the expression ‘arises amongst any of the parties, namely, the bank or financial institution or asset reconstruction company or qualified buyer” used in Section 11 read with Section 2 of the SARFAESI Act? What is the underlying object behind prescribing arbitration for the adjudication of disputes between a bank, financial institution, asset reconstruction company or qualified buyer, in Section 11 of the SARFAESI Act?
III. Whether the existence of a written arbitration agreement between the parties is required for the purpose of resolution of disputes under Section 11 of the SARFAESI Act, 2002? In other words, is there any conflict between the decisions of Oriental Bank of Commerce (supra) and Federal Bank (supra)?
IV. Whether Section 11 of the SARFAESI Act, 2002 should be construed as mandatory or di–rectory in its nature?”.
4. The Honble Supreme Court has considered various judgements passed by the Honble High Court and also by the Hon’ble Supreme Court and after making analysis of each and every Section used in this regard and also the intention of the enactment of the SARFAESI Act, has came to the following conclusion in para no. 124, which is reproduced below:-
“124. We summarize our final conclusion as under : –
I. Section 11 of the SARFAESI Act deals with resolution of disputes relating to securitisation, reconstruction or nonpayment of any amount due between the bank or financial institution or asset reconstruction company or qualified buyer.
II. In order to attract the provision of Section 11 of the SARFAESI Act, twin conditions have to be fulfilled being; first, the dispute must be between any bank or financial institution or asset reconstruction company or qualified buyer and secondly, the dispute must relate to securitisation or reconstruction or non-payment of any amount due including interest. Where the aforesaid two conditions are found to be prima-face satisfied, there the DRT will have no jurisdiction and the proper recourse would only be through Section 11 of the SARFAESI Act read with the Act, 1996.
III. The expression “non-payment of any amount due, including interest” used in Section 11 of the SARFAESI Act is of wide import and would include a various range of scenarios of ‘disputes’ connected to unpaid amounts including those arising due to MEd-party defaults, such as indirect defaults of the borrowers.
IV. Any dispute between two banks, financial institutions, asset reconstruction companies or qualified buyers etc., where the jural relation between the two is of a lender and borrower, then Section 11 of the SARFAESI Act will have no application whatsoever. The use of the phrase ‘any person” in the definition of ‘borrower’ in Section 2(f) of the SARFAESI Act, makes it abundantly dear that even a bank, financial institution or asset reconstruction company or qualified buyer can be considered a borrower, if they receive financial assistance from a bank or financial institution etc by providing or creating a security interest Thus, a lender-turned-borrower would also fall within the scope of a ‘borrower” under the SARFAESI Act and shall be governed by the same statutory framework as any ordinary borrower.
V. Section 11 of the SARFAESI Act, provides for a statutory arbitration for any dispute mentioned therein between any of the parties enumerated thereunder. There is no need for an explicit written agreement to arbitrate between such parties in order to attract Section 11 of the SARFAESI Act The said provision creates a legal fiction as regards the existence of an arbitration agreement notwithstanding whether such agreement exists or not in actuality.
VI. Section 11 of the SARFAESI Act is mandatory in nature. The use of the word “shall” therein, the mandate of the said provision cannot be bypassed or subverted by the parties by seeking recourse elsewhere.”
5. From perusal of the above conclusion and discussion made in the judgement it is clear that the Honble Supreme Court has held that where the dispute is between the two financial institutions regarding recovery of dues, whether there is any dispute relating to the priority of the charges, the dispute shall be referred to the arbitration despite the fact that there is no any clause for arbitration and the DRT has no jurisdiction to entertain the application under Section 17 of the SARFAESI Act.
6. In the light of the above, this Tribunal is of the view that the present TSA is not maintainable and therefore, the TSA is dismissed in the light of the above judgement passed by the Honble Supreme Court and the parties may approach for the arbitration under Section 11 of the SARFAESI Act.
Order
TSA no.222/2023 is hereby dismissed.
File be consigned to records.
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