Dismissed

Bank of India v. Cholamandalam Investment and Finance Company Ltd.

DRT21 Nov 2025SA/172/2023

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal-II, Delhi, allowed the respondent's application and dismissed the applicant bank's Special Appeal. Relying on a Supreme Court judgment, the Tribunal held it lacks jurisdiction over disputes between two financial institutions regarding priority of charges, directing parties to resolve the matter through arbitration under Section 11 of the SARFAESI Act.

What did the court decide?

The Special Appeal filed by the Bank of India was dismissed; parties directed to approach for arbitration under Section 11 of the SARFAESI Act.

Bank of India versus Cholamandalam Investment and Finance Company Ltd. — Arbitration | DRT (2025)

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Debts Recovery Tribunal-Il, Delhi

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s[lL72l2023

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NK OF INDIA Vs CHO!.AMANDALAM INVESTMENT AND FINANCE COMPANY LTD

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2L.t1.2025 Item no.70

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Present: Mr. SV Tyagi, Counsel for applicant bank None for respondent no.1 FI

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Mr. Vikrant Gautam, Counsel for respondent no.2 & 3

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None for respondent no.4

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Matter is taken through Video Conferencing/ Hybrid Mode.

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The Ld. Counsel for the applicant bank submitted that the DRT Court has no^jurisdiction to entertain the present matter because there is a decision from the Hontle Supreme Court of India and the matter is^going to arbitration.

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This SA has been filed by the applicant bank against the Cholamandalam Investment and Finance Company Ltd. The Ld. Counsel of the respondent no.2 & 3 has submitted that the^present SA is not maintainable as^{per judgementpassed} by the Honble Supreme Court in Appeal no.7LtDl2025 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^{judgementpassed} by the Honble Supreme Court.

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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 Hontle SuOremglourt on a^question whether

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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 Hontle 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:-

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'42. Having heard the learned counel appearing for the parties and having gone through the materials on rrcord, the following^questions fall for our consideration:

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I. What is the scope of Section 11 of the SARFAESI Act? In other wordq what is the meaning of the expression^'any dispute relating to securitistion or rffonstruction or^non- payment of any amount due including interest" occuning in Sution 11 of the SARFAESI'AcI?

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II. What is the significance of the expression 'brise amongst any of the^parties, namely, the bank or^financial institution or asset reconstruction company or^qualifid bttyer" ud in fuion 11 read with ffiion 2 of^the 9ARFAESI ActT What is the underlying obixt behind prescribing arbitration for the adjudication of disputes betwen a ban& financial institution,^{asset rffinstruction} company or^qualifid buyer, in Section¹¹ of^{the SARFAESI} Ad?

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ru. Whether the existence of a written arbitration agrement betwen the^prties is rquird for the^purpose of resolution of disputes under ion¹¹ of^{the 94RFAESI} Act, 2002? In other words, is there any contlict betwen the duisions of Oriental Bank of Commerce^(supra) and FederalBank (supra)?

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IV. Whether kction 11 of the SARFA$I Act 2002 should

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be construed as mandatory or'dlrectgly in its nature?"

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The Honble Supreme Court has considered various judgements passed by the Honble High Court and also by the Honble 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. L24, which is reproduced below:-

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"124. We summarize our final conclusion as under: -

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(D Sedion 11 of the SARFAESI Act deals with resolution of disputes relating to sauritiation, rrconstruction or nonpayment of any amount due betwen the bank or financial institution or asst rsonrtruction company or qualifid buyer.

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(II) In order to attract the provision of fuion 11 of the SARFAESI Act, twin conditions have to be fulfilld being; first, the dispute must be betwen any bank or financial institution or asst reconstrudion com@ny or^qualifid buyer and secondly, the dispute must relate to suuritisation or ruonstruction or non-payment of any amount due including interest Where the aforesid two conditions are found to be prima-facie satisfid, there the DRT will have no juriiliction and the proper rnouts would only be through kction 11 of the SARFAESI Act read with the Act,^1996. (IID The expression "non-payment of any amount due, including interest" used in Mion 11 of the SARFAESI Act is of wide import and would include a uarious range of scenarios of disputes' connected to unpaid amounB including thoe arising due to tfird-party defaults, such as indirect defaults of the borrowers.

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(IV) Any dispute futween two funks, financial institutions, asset rtronstruction companies or^qualifid buyers etc., where the^jural relation between the two is of a lender and borrower, then fuion 11 of the SARFAESI Ad will have no application whaboever. The u_se_-of the^phrae 'bny^pet5on" r)

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in the definition of 'borrower' in fuion 2(t) of the SARFAESI Act, makes it abundantly clear that even a banlt financial institution or asst rsonstruction company or^qualifid buyer an be constderd a borrower, if hey^{rrceive financial} assistance from a bank or financial institution etc by prouiding or creating a urity interest. Thus, a lenderturned-furrower would als fall within the xope of^a "borrower" under the SARFAESI Act and shall be^governed by the same statutory framework as any ordinary botower. (V) Sedion 11 of the SARFAESI Act,^prouides for a sbtutory arbitration for any dispute mentiond^therein betwen^any of the^parties enumerated thereunder.^{There is no ned for} an expticit written agrement to arbitrate^{betwen such} parties in order to attract Mion 11 of the SARFAESI Act The sid^provision creates a lqal^{fiction as rqardsthe} existence of an arbitration agrement^{notwithsbnding} whether such agrement exisb or not^{in actuality.}

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(W) ion 11 of he SARFAESI AcT is mandatory^{in nature.} The ue of the word 'bhall" therein,^{the mandateof the sid} provision cannot fu bypassed or subvertd by the^parties by seeking rffouue elsewhere. "

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From^perusal of the^{above conclusionand discussionmade} in the^judgement it is clear that^{the Hon'ble SupremeCourthas} held that where the dispute^{is betweenthe two financialinstitutions} regarding recovery of dues,^{whetherthereis any disputerelating} 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 jurisdictionto entertainthe} application under Section^{17 of} the^{SARFAESI Act.}

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In the light of the above,^{this Tribunalis of the view that the} ' present SA is not maintainable and therefore, the SA is dismissed in the light of the above^{judgementnassed by the Honble Supreme}

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""^

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Court and the parties may approach for the arbitration under Section 11 of the SARFAESI Act.

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ORDER

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SA no.77212023 is hereby dismissed.

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File be consigned to records.

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