Disposed

Aavas Financers Ltd. v. Au Small Finance Bank Limited

DRT27 Mar 2026SA/10/2024

Case brief

AI extract

What is this about?

On 27.03.2026, the Debts Recovery Tribunal adjudicated a dispute between two financial institutions. Relying on the Supreme Court judgment in Bank of India vs M/S Sri Nangli Rice Mills Pvt. Ltd, the Tribunal held that disputes between financial institutions regarding non-payment fall under Section 11 of the SARFAESI Act. Consequently, the DRT declared itself without jurisdiction and mandated the p

What did the court decide?

The appeal was disposed of; parties are directed to resolve their dispute via arbitration under Section 11 of the SARFAESI Act.

Aavas Financers Ltd. versus Au Small Finance Bank Limited — Arbitration | DRT (2026)

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Court of the Presiding Officer Debts Recovery Tribunal, Jaipur

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Item No. 35

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Case No.SA/10/2024

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AAVAS FINANCERS LTD Vs AU SMALL FINANCE BANK LIMITED

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Date: 27.03.2026. Proceedings through hybrid mode Present: Shri Sharad Joshi, Counsel for the Applicant Shri Ramnaresh Vijay, Counsel for the Respondent Bank/FI None for Ms. Manju Devi

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In the above matter the dispute relates to inter-se financial institutions and as per judgment of Hon’ble Supreme Court passed in the matter of Bank of India vs M/S Sri Nangli Rice Mills Pvt. Ltd on 23 May,2025 Hon’ble Supreme Court has held as under:

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G. FINAL CONCLUSION

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124. We summarize our final conclusion as under:

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(I) Section 11 of the SARFAESI Act deals with resolution of disputes relating to securitisation, reconstruction or non-payment of any amount due between the bank or financial institution or asset reconstruction company or qualified buyer.

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(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-facie 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.

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(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 thirdparty defaults, such as indirect defaults of the borrowers.

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(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

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Court of the Presiding Officer Debts Recovery Tribunal, Jaipur

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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 clear 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-turnedborrower 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.

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(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.

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(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. 125. Thus, for all the foregoing reasons, we have reached the conclusion that there is no infirmity in the impugned order passed by the High Court, directing the appellant and the respondent banks to resolve their dispute by way of arbitration in terms of Section 11 of the SARFAESI Act.

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Accordingly, SA stands disposed of and parties are directed to resolve their disputes by way of Arbitration in terms of section 11 of the SARFASAI Act. Any interim order passed shall continue till arbitrator is appointed and he takes up the matter.

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The period for which the pleadings were filed and till date shall not be counted for limitation.

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Files be consigned to record as per rules. Copy of order be uploaded on website.

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(Vimal Gupta) Presiding Officer Debts Recovery Tribunal, Jaipur

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Aavas Financers Ltd. v. Au Small Finance Bank Limited

Case brief

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Aavas Financers Ltd. v. Au Small Finance Bank Limited

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