2026 Supreme(Bom) 851

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
SANDEEP V. MARNE, J.
Aditya Birla Housing Finance Limited - Applicant
Versus 
Axis Bank Limited And Ors. - Respondents
COMMERCIAL ARBITRATION APPLICATION NO. 95 OF 2026
Decided On : 06-05-2026

Section 11 SARFAESI mandates arbitration for disputes between bank and financial institution over non-payment due including interest in loan takeover, even if one not secured creditor, as triggered by borrower's acts affecting security creation.

Headnote:(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 11; Arbitration and Conciliation Act, 1996 - Sections 9 and 11 - Application under Section 11 for appointment of arbitrator - Dispute between financial institution and bank over refusal to handover title documents after near-complete repayment in loan takeover from borrowers - Financial institution yet to become secured creditor due to withholding of documents - Small outstanding remained due to delay in credit leading to interest accrual - Held, disputes between financial institution and bank relating to non-payment of amount due including interest triggered by borrowers' acts fall within Section 11 SARFAESI mandating statutory arbitration even without privity of contract or secured creditor status for both - Wide import of expression includes various scenarios connected to unpaid amounts - Not restricted to disputes inter se secured creditors or priority of charges - Arbitration clause in loan agreement covers disputes with borrowers - Common arbitrator appointed for all parties. (Paras 1, 23-50)

(B) SARFAESI Act, 2002 - Sections 2(1)(zf), 2(z), 2(b), 31 - Security interest - Pledge/hypothecation disputes between banks not excluded under Section 31(b) if concerning priority inter se creditors - Applies even to charges outside Act's enforcement mechanism. (Paras 39-40)

(C) Interpretation of judgments - Observations on disputes between secured creditors to be read in context; does not limit Section 11 to such cases only - Wide range of disputes covered. (Paras 36-37)

Facts of the case:
Financial institution sanctioned loan to borrowers for takeover of bank's facilities secured by mortgage on property - Paid intimated outstanding directly to bank accounts but minor amount remained due to time gap and interest - Bank refused handover of title documents claiming overdue - Borrowers lifted debit freeze without knowledge and drew funds - Accounts classified as non-performing assets - Prior Section 9 proceedings deposited documents in court - Invocation of arbitration against borrowers and bank.

Findings of Court:
Sole arbitrator appointed to adjudicate disputes between financial institution, bank and borrowers - Title deeds to remain deposited during proceedings - Stay qua bank only.

Issues: Whether Section 11 SARFAESI permits arbitration between bank (secured creditor) and financial institution (not yet secured) over title documents in loan takeover; scope of 'dispute relating to non-payment of any amount due including interest'; applicability despite no privity or written agreement.

Ratio Decidendi: Section 11 SARFAESI creates statutory fiction of arbitration agreement for disputes between bank and financial institution relating to securitisation, reconstruction or non-payment due including interest - Not confined to secured creditors inter se or priority claims - Encompasses disputes triggered by borrower's non-payment affecting security interests - Objective to resolve inter-creditor squabbles without impeding recovery from borrowers - Common proceedings efficient.

Result: Application allowed.

Table of Content
1. loan takeover dispute blocks security interest transfer (Para 1 , 2 , 3 , 4 , 5 , 6 , 7)
2. sarfaesi section 11 mandates inter-creditor arbitration (Para 8 , 9 , 10 , 11 , 12)
3. secured creditor status required for sarfaesi invocation (Para 13 , 14 , 15 , 16 , 17 , 18)
4. contractual arbitration valid against borrowers (Para 19 , 20 , 21 , 22)
5. sarfaesi s11 applies without secured creditor precondition (Para 23 , 24 , 25 , 26)
6. nedfi inapplicable to inter-creditor arbitration disputes (Para 27 , 28 , 29 , 30)
7. bank of india defines s11 non-payment dispute scope (Para 31 , 32 , 33 , 34 , 35)
8. broad s11 coverage for creditor disputes on non-payment (Para 36 , 37 , 38 , 39 , 40 , 41)
9. statutory fiction creates arbitration agreement under s11 (Para 42 , 43 , 44)
10. s11 applies despite imperfect security interest (Para 45 , 46 , 47 , 48 , 49)
11. single arbitrator appointed for all disputes (Para 50 , 51 , 52 , 53)

JUDGMENT :

SANDEEP V. MARNE, J.

1) This is a Petition filed under Section 11 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) raising an issue of seminal importance about permissibility to conduct arbitration under Section 11 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) between a secured creditor (Axis Bank) and an entity (Applicant), who is prevented from becoming a secured creditor in respect of the property of the same borrowers. The case involves takeover of loan by the Applicant- Aditya Birla Housing Finance Ltd. (Aditya Birla) from Axis Bank. Towards the transaction of loan transfer, Aditya Birla credited the intimated outstanding amount in the loan account with Axis Bank. However due to some delay in such credit, an insignificant amount remained outstanding in the loan account with Axis Bank, resulting in non-closure of the loan account and on that ground, Axis Bank has refused to terminate its security interest over mortgaged properties by handing over title documents to the Applicant. Because of refusal to handover the title documents by Axis Bank, Applicant is yet to become a secured creditor whereas Axis Bank is already a secured creditor in respect of the same property of the same borrowers. Whether in such circumstances arbitration under Section 11 of the SARFAESI Act can be conducted between the Applicant and Respondent No.1-Bank is an issue that arises for consideration in the present Application. The Applicant seeks contractual arbitration against the borrowers in pursuance of arbitration clause in the loan agreement and statutory arbitration against Axis Bank under Section 11 of the SARFAESI Act.

FACTS

2) Applicant-Aditya Birla is an incorporated entity engaged in the business inter alia of housing finance. Respondent No.1-Axis Bank is a banking company doing business under Banking Regulation Act, 1949. Respondent No.2 is a company incorporated under the Companies Act, 1956 and Respondent Nos.3 to 5 are its directors. Respondent Nos.2 to 5 are collectively referred to as the ‘borrowers’.

3) The borrowers had availed cash credit and overdraft facilities from Axis Bank for business purposes. The borrowers approached the Applicant on 17 July 2023 seeking credit facilities of Rs.4,70,05,000/- inter alia for the purpose of taking over the cash credit and overdraft facilities sanctioned by Axis Bank. The borrowers submitted copies of foreclosure letter and statement of accounts issued by Axis Bank in respect of the cash credit account and overdraft facilities. Applicant sanctioned loan of Rs.4,70,05,000/- to the borrowers. According to the Applicant, the loan is sanctioned against mortgage of property bearing Plot No. 25, Survey No.20, Dwarka Service Centre, Marble Market, South West Delhi, Delhi owned by Surendra Kumar Agarwal (Respondent No.3). It appears that security interest in respect of the subject property was already created in favour of Axis Bank to secure the credit facilities disbursed by it.

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